Two placements each raising about $80 million were launched yesterday (Tuesday), with Credit Suisse First Boston leading a 40 million share deal for footwear manufacturer Yue Yuen Industrial and Merrill Lynch a 457.3 million issue in China's downstream oil major Sinopec.
Both came off the back of strong share price performances, with Yue Yuen also spurred by the prospect of MSCI inclusion at the end of May, which will bring index trackers on board.
Taiwan's Tsai family raised HK$616 million ($80 million) from the sale of a 2.57% stake in Yue Yuen, which was priced after the Hong Kong close, although allocations will not be finalised until this morning. Pricing came at a 4.049% discount to the stock's HK$16.05 close at HK$15.40 per share. The stock is said to be just off a 52 week high and year-to-date is up 26.88% against a 4.635% decline in the Hang Seng Index.
With a market capitalization of $3.19 billion, Yue Yuen sits just outside the main index, but is said to be increasingly closing the valuation gap between other listed industrial stocks such as Johnson Electric and Li & Fung. It is currently trading on a p/e multiple of 10.8 times 2003 earnings and a dividend yield of about 4%
And as UBS Warburg puts it, "In its previous life, Yue Yuen was an illiquid mid-cap serving a mature market." But it adds that its, "Entry into the MSCI HK Index with a 1.1% weighting and acquisition of athletic apparel OEM from Pou Chen mark a new phase of the company's history."
CSFB's relationship with the company dates back to this acquisition from parent company Pou Chen, also owned by the Tsai's. The family controls 71.35% of the company, with 25.92% of the shares in freefloat (pre deal) and a further 2.73% held by other company directors.
At the same time, Merrill Lynch executed a HK$661.3 million ($85 million) deal in Sinopec for ABB Ltd, Europe's largest electrical engineering company. Representing a roughly 0.5% stake in the group, shares were sold at HK$1.45, a 2.7% discount to Sinopec's HK$1.49 close.
At this price, ABB will book a loss on its investment in Sinopec, which was purchased at HK$1.61 per share during the company's IPO in autumn 2000. ABB participated as a strategic investor in the flotation along with three oil majors, Exxon, BP and Shell.
Since then it has undertaken a programme of reducing debt through the sale of non-core assets and observers say it has picked a good time to sell, since the stock has recently bounced as the result of strong first quarter earnings, but may come under pressure if global oil prices continue to stabilize. Year-to-date it is up 13.74%.
The end of a price war with Petrochina helped pushed oil prices up 74% year on year and Sinopec's first quarter net profits by 1,085% to Rmb6.4 billion. Although the company is often thought of as China's downstream operator, roughly 50% of its EBIT comes from upstream E&P.
And as HSBC concludes in a research report published in late April, "For downstream refining, the second quarter outlook is cloudy due to the SARs crisis affecting near term fuel demand and the plunge in Asian refining margins following the Iraq war. Although Sinopec is aiming to refine 27.8 tonnes of crude during 2Q, in line with our forecast assumptions, this could be a challenge if the Chinese economy goes into a SARs tailspin."
