1999: Signs of recovery

IFR Asia - 20th Anniversary Special Issue 2017
5 min read

Deals began to flow again in 1999, at least in North Asia. China’s red chips resumed their overseas march through the Hong Kong IPO market, and governments began looking to sell down the investments they had been forced into at the height of the crisis.

The word “cornerstone” first appeared in a Hong Kong IPO report early in 1999, when Shandong International Power Development (now known as Huadian Group) sold 40% of the deal to US utility Southern Energy. The cornerstone practice wouldn’t catch on in earnest for a few more years, but the early outing wasn’t encouraging: the US$250m offering failed to get over the line in February, before returning in a stronger market four months later.

IFR Asia 110 – May 22, 1999

Korea Telecom provides boost

Strong investor demand for the US$2.2bn sale of telecommunications operator Korea Telecom will provide a tail wind for prospective South Korean equity issues including the second instalment of Pohang Iron and Steel Company (Posco) and Samsung Display Devices, analysts say.

The sale of Korea Telecom follows on the heels of a series of successful state sell-offs in the country. In December 1998, investors generated around US$1bn of demand for the US$300m ADS placement from Posco and, in March this year, the government raised US$750m from the sale of Korea Electric Power Co (Kepco).

High levels of demand for Korea Telecom’s shares will almost certainly lead to investors being disappointed in their request for allocations.

Late last week, the book was reported as around two times subscribed although this is understood to include a number of inflated orders.

“Much of the demand has been company specific but there is also re-weighting of assets towards Korea,” said a syndicate official. “Its [Korea Telecom’s] success will provide opportunities for forthcoming sales,” he added.

Large global funds that can allocate at will and are not confined to specific sectors and generalist funds have provided the backbone of demand, according to sources close to the transaction.

“It is a hot deal with interest from all corners of the world not just from Korea specialists,” said a Hong Kong-based syndicate official.

Morgan Stanley Dean Witter is global coordinator and joint global bookrunner with Daewoo Securities. Daewoo and LG Securities are joint global coordinators.

IFR Asia 115 – June 26, 1999

Change of heart towards SIDP

The US$250m share placement from Shandong International Power Development (SIPD) was completed at the fourth attempt on June 25, but this time was in excess of five times subscribed. Syndicate officials attributed the deal’s success both to the upturn in sentiment towards China and increased valuations in the oil and gas sector since the most recent attempt to bring the issuer to the market.

The share price of HK$1.58 – shares were marketed with an indicative range of between HK$1.38 and HK$1.73 – equates to a price-earnings multiple of 8.2 times estimated 1999 earnings. “The shares were priced just above the middle of the indicative range because both the company and the underwriter were determined to ensure a stable aftermarket,” said a source.

Strategic investor US-based Southern Co, which had agreed to participate in SIDP’s last attempt to access the market in February, remained in the transaction and subscribed to 40% of the issue.

Officials at lead manager Goldman Sachs reported that many investors who had agreed to participate in the offering when it emerged in February remained loyal to the company. “Renminbi risk has receded and sentiment towards China has improved,” noted an analyst.

IFR Asia 135 – November 13, 1999

Tracker Fund may become Hong Kong’s sole divestment vehicle

The success of the HK$33.3bn (US$3.87bn) Tracker Fund of Hong Kong may allow the Exchange Fund Ltd (Efil) to use the fund as the sole conduit for the divestment of the US$21bn portfolio acquired when the government intervened in the stock market in August 1998.

Retail demand from investors in Hong Kong, which accounted for HK$28bn of a total of HK$48bn of demand for the offering, was accompanied by a strongly performing Hang Seng index in the days prior to listing on November 12.

In light of the improved sentiment, the fund’s Tap mechanism, which allows the regulated pass through of additional securities, is expected to be implemented fully and will perhaps be the sole divestment mechanism, believe analysts.

Up to a further HK$3bn of stock will be released in the initial “stub quarter” which runs until December 31. Subsequently, the government has indicated that it intends to divest up to HK$4bn each quarter depending on market conditions.

The fund comprises a portfolio of the 33 constituents of the Hang Seng index and will pay semi-annual dividends.

Utilising the Tap structure would allow the government to fulfil its objective of disposing of the remainder of its holding in an orderly manner without disrupting the market. However, some were sceptical the US$21bn portfolio could be divested via the fund alone. “There is too much stock to place with retail investors alone. The government needs institutional investors to participate. Genuine institutional investors – apart from hedge funds which can arbitrage – will not buy into a fund,” said a Hong Kong-based analyst.

The high average retail order, which stood at HK$116,000 (US$15,000), is seen by some as evidence that the issue is a watershed for the savings industry in Hong Kong. Insiders noted that in excess of 1,000 applications were for the maximum US$500,000 allocation. The 185,000 retail applications received represent one-third of all investors in the Hang Seng index.

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