Another property developer and an Indian producer and distributor of spirits joined the deluge of companies raising money from equity sales in the final days of the second quarter. The April-June period turned out to be significantly stronger than most market participants expected at the beginning of the year. Whether this newfound investor confidence stays intact remains to be seen, and bankers expect a meaningful number of listed companies will try to tap the equity markets in the next couple of months just in case the window shuts.
Property companies across the region are among those most hungry for capital, with several developers in China having come to market over the past couple of months to sell either straight equity or convertible bonds -- sometimes both. And in the last few days of June, a number of Indian companies linked to the property, construction and infrastructure sectors, starting with Unitech last Friday, rushed in to take advantage of some end-of quarter buying by fund managers. As earlier reported by FinanceAsia there were at least five Indian companies of size attempting to complete qualified institutional placements (QIPs) on Monday.
Undeterred by such competition for funds, Chinese real estate developer KWG Property launched a top-up placement of around $200 million first thing Tuesday morning after suspending trading in its shares. Meanwhile, India's United Spirits, which is part of the United Breweries Group, continued the bookbuilding for a similar-sized placement that it launched at around 9pm on Monday night, Hong Kong time, as it wanted to give Indian investors another chance to look at the deal.
Both deals attracted sufficient demand, but Hong Kong-listed KWG was clearly the more popular of the two and was able to upsize its deal by 15% to 300 million shares from an initial 260 million -- even as other Chinese property stocks fell by between 3% and 5% in Hong Kong trading. KWG also fixed the price slightly above the bottom of the HK$5.05 to HK$5.25 price range at HK$5.10, which allowed it to raise HK$1.53 billion ($197 million). The final price represented a discount of 8.6% versus Monday's close of HK$5.58, which seemed reasonable for a deal that corresponded to about 15 days' worth of trading volume. The initial price range translated into a discount of 5.9% to 9.5%.
KWG is a second-tier property company that focuses on the mid- to high-end segment of the residential market. While smaller than many of its peers, it is well regarded in parts of the investor community and, according to a source, the deal was multiple times covered and attracted about 70-75 accounts, including existing shareholders. Most of the buyers were Asia-based, which is not surprising given that the order book opened in the Hong Kong morning and closed by 2.30pm.
As the allocations took some time to sort out, the stock remained suspending throughout Tuesday's session. Credit Suisse and Morgan Stanley were joint bookrunners.
With its head start -- as the deal was launched and marketed to non-Asian investors the night before -- United Spirits was able to wrap up its placement before the Indian market opened, allowing the stock to trade as normal.
That deal, which was arranged by Citi and CLSA, attracted a small group of what were referred to as "high-quality" investors. These primarily international investors, which were said to number less than 15, weren't willing to buy at any price though and there was quite a bit of price sensitivity in the order book. The final price was fixed at the bottom of the Rs880 to Rs910 range. This gave a total deal size of Rs9.05 billion ($188 million), which the company said it will use to repay part of its outstanding debt.
The offering consisted of 10.28 million treasury shares that were originally held by Shaw Wallace, an Indian maker of distilled spirits that was taken over by the United Breweries Group in 2005 and is currently in the process of being merged into United Spirits. This means that all the money from the sale will end up with United Spirits. The shares corresponded to about 15 trading days, based on the average daily volume over the past three months. The final price equalled a discount of 4.05% versus Monday's close of Rs917.10.
The company is the third largest producer of spirits in the world with more than 140 brands in its portfolio, including whiskeys, brandies and white spirits. But while its core business performance has remained solid with strong sales volumes, the company has been suffering from an increasing debt burden since it bought Scottish whiskey distiller Whyte & Mackay in 2007 for £595 million ($985 million at today's exchange rate) and growing interest costs are eating into its profits. The efforts to repay debt are thus welcomed by investors.
Yesterday, India's Economic Times reported that these efforts may also see the company sell a stake in itself to a private equity firm. According to the newspaper, Blackstone, KKR and Capital International are all doing due diligence on the firm at the moment with the aim of acquiring a stake worth as much as $250 million to $300 million. United Spirits currently has a market cap of about $1.8 billion.
The high gearing levels aside, the liquor distributor's share price has performed well in recent months. After a troublesome fourth quarter and another dip in early January, it has risen 81%. But it is still down 38% from its high in August last year, which perhaps gave investors the confidence they needed to buy in. The share price fell 4.95% on Tuesday after the deal to finish at Rs871.7 or 0.9% below the placement price.
Despite the competition for capital among Indian companies after the market closed on Monday, all but one of the five companies that launched QIPs was able to meet their fund raising targets. (See separate story on our web site today about the cancellation of GMR Infrastructure's offering.)
Housing Development and Infrastructure, which was the only one of the five issuers that went out with a range instead of a fixed price, was even able to upsize its initial $300 million offering to approximately $350 million. The real estate developer eventually fixed the price at the bottom of the Rs240 to Rs250 range for a 9.5% discount to Monday's close of Rs265. One of the selling points, according to sources, was the fact that the deal accounted for 25.6% of the existing share capital and should result in a significant increase in the free-float.
The offering attracted about 40 investors, including a number of Indian mutual funds. The international buyers were split between long-only accounts and hedge funds. Like United Spirits, Housing Development and Infrastructure will also use the money to pay down debt. J.P. Morgan, Kotak Mahindra and Macquarie were the joint bookrunners.
Meanwhile, sugar mill operator Bajaj Hindusthan completed its Rs7.13 billion ($147 million) offering at the earlier announced fixed price of Rs204 -- a 12.4% discount to Monday's close. The company did not make use of the upsize option, which was flagged to investors, but not specified in terms of size. CLSA and Deutsche Bank arranged that sale.
In addition, FinanceAsia reported on Tuesday that Hindustan Construction Company raised Rs4.8 billion ($100 million) the previous night at a 4.7% discount with the help of Morgan Stanley. Also, Sobha Developers raised Rs5.17 billion ($107 million) from an upsized deal arranged by Enam Securities and Morgan Stanley. That deal was completed at a 2.8% discount.
