Value Partners raises equity, flags China expansion

Hong Kong-based fund manager Value Partners surprised the market with a top-up placement yesterday, which saw it raise HK$795 million ($103 million). The firm, which focuses on investments in Greater China and has a reputation for being able to spot good small- and mid-cap companies that have been overlooked by the market and turn them into highly profitable investments, said it will use the money for business expansion in China.

It didn’t elaborate further on how it will proceed with this expansion, but one possibility is that it has identified a potential acquisition target and needs the money to seal a deal.

Given that fund management isn’t a particularly capital intensive business, Value Partners hasn’t been back to the equity capital markets since it listed in November 2007 and investors saw the offering as a rare opportunity to bulk up on a stock that is otherwise quite illiquid. Based on the daily trading volume in the stock over the past month, the placement equalled about 47 days’ worth of trading.

This followed another rare appearance in the equity capital markets on Wednesday when SM Prime Holdings, a Philippine developer and operator of shopping malls, raised Ps6.55 billion ($150 million) to finance its strategic expansion programme in both the Philippines and China. Before Wednesday, SM Prime hadn’t sold new equity since it went public in July 1994.

Value Partners offered 140 million shares, or 8.6% of the company, at a price between HK$5.68 and HK$5.93, which represented a discount of 5% to 9% versus yesterday’s close of HK$6.23. And after a bookbuilding that lasted about three hours, the price was fixed at the bottom for the maximum 9% discount.

While this does seem wide for a deal of this size, the stock did jump 7.8% on Wednesday and has risen 47.6% from its most recent low on August 25. Hence it is no wonder investors felt they wanted a bit of an extra cushion to buy the stock.

However, the recent gains, which has taken the share price to within 4.3% of a 21-month closing high of HK$6.51 that it reached in March this year, are also an indication of how well-bid the stock has been in the past few weeks and may explain why the firm chose to come to market now – amid a slew of other blocks and placements, as well and lots of new listings, both in Hong Kong and the rest or Asia. Sources said the deal was comfortably oversubscribed, attracting existing institutional shareholders and new investors – particularly Hong Kong-based ones. In all, more than 30 investors participated in the transaction.

The offering was arranged by J.P. Morgan and Morgan Stanley, which were also joint bookrunners on the IPO three years ago.

Meanwhile, SM Prime’s share sale 24 hours earlier attracted about 40 investors, including high-quality property specialists and long-only funds from Asia, Europe and the US, as well as some hedge funds and local accounts – in spite of the fact that the deal came on the back of a decline in the property sector in the past couple of weeks and was offered at a tight discount.

The company offered approximately 569.6 million shares, or a 5% stake in the company, at a discount between 0% and 4% versus Wednesday’s closing price of Ph11.98. It too was priced at the bottom for the maximum 4% discount.

According to a source, the deal was well enough covered that the $75 million upsize option could have been exercise, but the company decided not to do so – perhaps because of the low-end pricing.

As with many other stocks in the Philippines, SM Prime is also not particularly liquid – the placement accounted for about 40 days worth of trading – and in a statement issued in the wake of the sale yesterday, SM Prime president Hans Sy said the deal will help broaden the company’s shareholder base and increase the trading liquidity.

Chief financial officer, Jeffrey Lim, added that the equity fund-raising together with the proposed listing of the company’s SM Prime real estate investment trust (Reit), will put SM Prime in “a very strong position” to continue growing its businesses, both in the Philippines and China. The company has said that it will pursue a Reit IPO as soon as the rules regarding Reit listings in the Philippines have been finalised.

The company plans to have 43 malls in operation by the end of this year, including three in China.

The placement was jointly arranged by CLSA and Macquarie Capital.