Youku.com, China’s largest online video company, and a number of pre-IPO investors early Friday raised a combined $539 million from a fully marketed follow-on offering. When the deal was first flagged on May 5, Youku’s share price had risen more than four times since the December IPO, but that didn’t stop investors from buying the stock and the offering ended about three times covered.
The price did fall during the marketing, which may have helped attract buyers, although in relation to its overall gains the setback was minimal. In fact, the decline might have been bigger if it hadn’t been for the stunning US trading debut by social networking website LinkedIn last week, which helped put a renewed focus on the internet sector. Youku is known as China’s YouTube and had 231 million monthly unique visitors from homes and offices in March 2011, and a 37% market share in terms of total user time spent viewing online videos in China last year, according to its prospectus.
Meanwhile, in Hong Kong, department store operator Maoye International Holdings raised HK$1.02 billion ($131 million) from a top-up placement after the market closed on Friday, adding to a steady flow of placements last week. Despite the fact that it was launched on a Friday evening and came at a tight discount relative to its trading value, this deal also saw good demand, which allowed it to be upsized by 30% from an original deal size of about $101 million.
Youku.com was also upsized slightly at the time of pricing to 12.31 million American depositary shares from 12 million ADS initially. The reason, according to a source, was that the company wanted its gross proceeds to exceed $400 million, although the reason why that was so important wasn’t clear. In the prospectus, the company outlined a plan for how to use $150 million of the money raised (the acquisition of video content; investments in technology, infrastructure and product development; and an expansion of its sales and marketing effort), but said the rest will go towards general corporate purposes.
After the upsize, the company sold 8.31 million ADS that were backed by new shares, while the remaining 4 million came from various pre-IPO investors, including the management. Given the sharp rally in the share price, it is not a big surprise that they are selling and Goldman Sachs, which was the sole bookrunner both for the IPO and this follow-on transaction, waived the six-month lockup so that they could use the current window that appears to have opened up for placements in the past couple of weeks.
The deal was priced at $48.18 per ADS, which equals a tight 2.8% discount versus Youku.com’s closing price of $49.59 in New York on Thursday. Each ADS represents 18 common shares, which means the deal accounted for about 10.8% of the enlarged share capital. There is also an overallotment option of 1.8 million ADS that may be exercised within 30 days.
The transaction was about three times covered and attracted more than 100 investors, including some existing shareholders who chose to top up their holdings, according to the source. The allocation was skewed towards the larger accounts and about two-thirds of the deal was said to have gone to the top 10 investors.
The share price fell 3.7% to $47.75 after the pricing on Friday.
Maoye also found good support among existing shareholders and in fact the deal was already half covered at launch thanks to early indications from some existing investors and at least one significantly new investor. The coverage ratio grew to almost three times during the bookbuilding and about 40 investors were said to have participated in the deal. Some 70% of the demand came from long-only funds and there was also quite a lot of demand from the US.
Given the upsize, the price was fixed at the bottom of the HK$3.74 to HK$3.81 range, for the maximum 6.7% discount versus Friday’s close of HK$4.01. The deal was quite small in relation to its issued share capital — just 5.3% — but the stock has a limited free-float which means it is not that liquid. Indeed, the upsized deal accounted for about 35 days worth of trading volume.
However, this was the first time Maoye returned to the equity capital markets since its IPO in 2008, and with the share price having outperformed the rest of the Chinese department store operators this year, the deal did attract some interest. However, the stock had fallen every day except one since it hit a record high of HK$4.31 on May 12, which may explain why the management was so keen to sell that it chose to come to market on a Friday. Sure, issuers may feel that there is an opportunity to raise new capital right now, but there also seems to be a sense of urgency that it may not last.
Maoye’s top-up placement was also arranged by Goldman Sachs.
