Equity Issue

IFR Asia Awards 2018
3 min read
Fiona Lau

In a year when Hong Kong’s stock exchange passed reforms aimed at attracting more technology companies, it is fitting that the city’s biggest tech stock should have been at the heart of the most significant – and impressive – deal of the year.

Naspers’ HK$76.95bn (US$9.8bn) sell-down in internet giant Tencent Holdings showed that Hong Kong can compete with the world’s biggest equity financing venues.

Asia Pacific’s largest overnight block trade smashed a record in Hong Kong that had stood since Vodafone sold a HK$50.9bn China Mobile stake in 2010. It is also the third-largest on record anywhere in the world.

The March 23 share sale was the first from South African media company Naspers, which had seen its US$32m Tencent investment in 2001 balloon to US$175bn.

The deal was launched a day after Tencent announced its quarterly results. Slowing gaming revenues worried investors, dragging down the shares by 5% before the sell-down was announced.

After months of preparations, joint bookrunners Bank of America Merrill Lynch, Citigroup and Morgan Stanley nevertheless went ahead and launched the offer of about 190m secondary shares, or about 2% of the company.

Unlike a typical block trade in Asia, the deal was launched on a best-efforts basis without any wall-crossing and no price range at launch. Naspers, which still owns a 31.1% stake after the trade, also said it had no intention of selling any more shares for at least three years.

This allowed the banks to build a genuine, global book from the outset, creating competition among investors and ultimately leading to greater price tension.

Launching without a price range also gave the leads more flexibility on pricing, which was critical to the deal’s success given that the Dow tumbled 2.9% during bookbuilding after US President Donald Trump announced fresh tariffs on Chinese goods. Tencent’s American depositary receipts were still trading in the US, while Naspers – which trades largely as a Tencent proxy – is quoted in Johannesburg.

Despite the challenges, the block was covered in a few hours and ended well oversubscribed with more than 300 investors participating.

About an hour before the books closed, the leads issued guidance of HK$400–$410 per share or a discount of 6.7%–9%. The shares were eventually priced at HK$405 each, or a 7.8% discount to the pre-deal close of HK$439.40.

The top 20 investors took around 60% of the deal and the top 10 bought 40%. Demand came from global top-tier long-only funds, sovereign wealth funds and hedge funds. Geographically, about 55% of demand came from Asia, 38% from the US and 7% from Europe.

Tencent closed at HK$420 the day following the sell-down, a 4.4% drop on the day but left investors who took part in the deal comfortably in the money. Naspers got the best of the bargain, however, after Tencent retreated from its first-quarter peaks.

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