Hong Kong-listed Xinao Gas raised HK$469 million ($60 million) from an increased top up placement yesterday (Monday). With HSBC as lead manager, the company raised the deal size from 102 million shares to 122 million shares and priced the offering at a fixed discount of 8% to Friday's HK$4.175 close.
Books opened at 9.30am Hong Kong time and closed two hours later roughly three times covered with participation from just over 50 investors. By demand, the book was said to have been fairly evenly split across the three regions, with allocations skewed towards the US and Europe, leaving Asia about 30%.
The controlling shareholder, Easy Win Enterprises, will see it stake reduced from 55.36% to 47.5%. The deal represents 14.2% of the company's enlarged share capital and a hefty 84 days trading. However, while such a large volume of paper may put pressure on the stock price over the next few days, it may also prompt a new rally after that.
A placement has been expected for some time to fund the company's capex plans on the Mainland where it has said it plans to spend about $74 million this year. Having risen nearly 120% between January and mid October last year, the stock has traded in a HK$4.00 to HK$4.25 band since then. Year-to-date, it is down 3.47% and trading on a forward P/E multiple in the low teens.
Xinao is based in Hebei province in the north of China and has about 40 gas distribution projects in operation, with plans for a further 10 by the end of 2005. Most of its revenue is currently derived from gas connection fees and in order to avoid the imposition of 13% VAT, the company separated its pipeline construction and gas sales businesses during 2003.
It currently has a low penetration rate of only 6% in the areas it serves, but the government has said it hopes natural gas will increase to 8% of household fuel by 2010. Revenue figures for the first half of 2003 versus 2002 show that the company is also starting to derive marginally higher revenues from LPG distribution (21% to 23%) and marginally lower from connection fees (59% to 53%). It is also hoping to boost sales to corporate customers that will typically consume more gas.
