Xinyi Glass placement upsized to $127 million

One might have thought that investors would tread cautiously around a stock that has already risen more than 200% this year, but as it were, investors were happy to buy Hong Kong-listed Xinyi Glass Holdings last night when the stock was offered through a combined placement of new and existing shares. The share sale was ultimately upsized by 21%, which resulted in a final deal of HK$986 million ($127 million).

The price was fixed at the bottom of the range for a 7.6% discount but because of strong gains this week, the final placement price was still above Friday's closing price. China International Capital Corp (CICC) and Citi acted as joint bookrunners for the offering.

Xinyi Glass, which makes high-quality float glass and glass products for the construction and automobile sectors -- and has recently begun to move into the solar power sector -- is viewed as a key beneficiary of the emerging signs of a recovery in both property sales and car sales. Also, a company announcement over the past weekend that outlined plans to increase its production capacity of thin film photovoltaic glass (TCO), which is used in the manufacturing of solar cells, prompted several banks to upgrade their target price on the stock. And despite the strong gains this year, there is no question that analysts still like the company as there are currently 11 "buy" recommendations on the stock, compared with just one "sell" and no "holds", according to Bloomberg,

Sources said the placement attracted approximately 50 investors and was comfortably oversubscribed even after the upsize option was exercised in full. Demand came primarily from Asia, but included a few onshore orders from the US even though the books closed at 8.30pm Hong Kong time. The early close also meant that the deal was marketed against a backdrop of weak trading in Europe, and never got a chance to benefit from the turnaround in US markets that occurred after the Conference Board said that US consumer confidence had improved markedly over the past month and is now at its highest level since September 2008.

The base deal included a top-up placement of 90 million Xinyi Glass shares that were offered by controlling shareholder Full Guang, which will later subscribe to the same number of new shares at the same price to ensure the money ends up with the company. But Full Guang also took the chance to take some profit by selling an additional 50 million existing shares. This was later increased to 80 million shares as the option to increase the deal was exercised in full.

As a result, the final deal size tallied 170 million shares, or 10.1% of the existing share capital. The shares were offered in a range between HK$5.80 and HK$6.20, which translated into a discount of 1.3% to 7.6% versus yesterday's close of HK$6.28. Sources said the initial aim was to try and move the price slightly off the bottom of the range, but that apparently didn't work once the decision was taken to exercise the upsize option and the final price was fixed at HK$5.80.

The buyers included some existing investors and, aside from the usual mix of long-only and hedge funds, the deal also attracted a bit more private banking demand than has been the case on other recent share sales in Hong Kong. This suggests that some investors who have been holding off during the current rally in the belief that it would peter out and give way to another downturn, are being forced to come in and chase the market. In certain names, market participants say investors are closing out short positions at a 50% loss.

Xinyi told investors that it will use the money raised -- approximately $67 million -- for general corporate purposes, including debt repayments and future increases of TCO and solar power-related production capacity.

On Sunday the company said it had acquired a second TCO glass production line, which will result in a total investment of more than HK$100 million. The new line will be located in the Pearl River Delta, will have an annual output capacity of 2.75 million square metres of glass products and is scheduled to begin operations in the third quarter of 2010. The company's first TCO glass production line will begin operations in the second half of this year and will have an annual capacity of 680,000 square metres.

Commenting on the additional investment, Xinyi Glass's chairman Lee Yin Yee noted that solar energy will be the mainstream with regard to the development of alternative energy in the future. "Benefitting from government policies in China and other countries to hasten adoption of solar energy, the group is confident of the prospect of TCO glass products and expects the profit margin of the products to reach 50% or above," he said.

The equity market reacted positively to the news and pushed up the share price by 8.85% on Monday and a further 2.1% yesterday. Yesterday's closing price marked a new 2009 high and is only slightly below the levels that the stock was trading at a year ago.