Hong Kong smashes ECM records

IFR Asia 1184 - 24 Apr 2021 - 30 Apr 2021
6 min read
Fiona Lau

Follow-on offerings are picking up pace in Hong Kong with five companies raising a combined US$13.2bn last week, including a record-breaking US$10bn equity combo from Chinese online delivery services provider Meituan.

These deals, together with a HK$114bn (US$14.7bn) sell-down in Tencent Holdings earlier this month, have already made April the busiest month on record for Hong Kong equity issuance with volume reaching US$28.98bn, beating a record that has stood since AIA floated over 10 years ago. Counting only follow-on offerings, April's total has more than doubled the previous high with US$24.9bn raised.

Meituan kicked off the week on Monday with a US$7bn share placement, the largest overnight primary follow-on ever in Hong Kong, and a US$3bn convertible bond, the largest CB from an internet company in Asia.

A top-up placement of 187m shares was offered in a price range of HK$265–$274 per share while existing shareholder Tencent has agreed to buy US$400m of additional Meituan shares in a private placement at the same price.

Meituan also launched a six-year put-four CB of US$1.440bn–$1.484bn and a seven-year put-five tranche of US$1.473bn–$1.5bn.

“The success of the Tencent sell-down has encouraged other issuers to tap the market. It definitely shows there is still ample liquidity in the market even though we have seen some correction in the past two months,” said a banker on the Meituan deal.

Prosus, a spin-off of South African online media and entertainment company Naspers, sold a 2% stake in Tencent at HK$595 per share on April 7. Tencent shares have been trading above the placement price since then and were 4.4% above water at Thursday’s close of HK$621.

Going well

The Meituan deal, which was the subject of much speculation after some shares were transferred in the CCASS Hong Kong clearing system a week before the launch, also went well. Supported by a close to 10x covered book, the deal priced near the top of the range at HK$273.80 per share, representing a discount of 5.3% to the pre-deal close of HK$289.20.

“The Meituan deal is obviously a very good data point for mega-sized deals done out of Asia. People want to have big liquid tech names doing deals, and when you have bigger companies doing bigger raisings, more capital will migrate to here,” said another banker on the transaction.

Almost 300 investors participated in the placement with strong demand from long-only funds and technology specialists. The top 20 investors took about 60% of the deal.

The two CB tranches were also four times covered with almost 100 investors participating. The yields of the US$1.484bn six-year put-four CB and the US$1.5bn seven-year put-five CB were set at the investor-friendly end while the conversion premium was priced at the mid-point of the range. (See China Equity capital markets.)

Meituan intends to use the proceeds to fund research and development in autonomous delivery vehicles, drone deliveries and other cutting-edge technology initiatives, as well as for general corporate purposes.

Bank of America and Goldman Sachs were joint global coordinators on the top-up placement and joint bookrunners with CLSA and UBS. BofA and Goldman were joint bookrunners on the CB.

Again, Meituan shares, which had lost 7.6% the previous week, traded well after the placement. The stock rose 1.5% the day following the share sale and closed at HK$292 on Thursday, 6.6% above the placement price.

Good money

The strong performance of Tencent and Meituan has brought more deals to the market, as issuers and shareholders take note of the strong response and investors are keen to join other follow-ons after making good money from those two trades.

“We were burnt during the tech sell-offs earlier this year. The quick gain from Meituan helps us cover some losses and we are keen to buy into more follow-ons if the prices are right,” said one fund manager.

On Monday, a shareholder of consumer appliance maker JS Global Lifestyle raised HK$609m from a block trade, a day before Anta Sports Products’ chairman Ding Shizhong and directors pocketed HK$11.57bn. On Wednesday, independent piped gas distributor China Gas Holdings raised HK$11.7bn from a top-up placement and Kingboard Holdings chairman Cheung Kwok-wing and family cashed in HK$1.16bn of stock in the circuit board giant.

The Anta and China Gas placements were each multiple times covered, but investors pushed back on pricing. The Anta deal was priced at HK$131.48 per share, near the bottom of the HK$131.28–$133.88 price range or at a 7.5% discount to the pre-deal close. The China Gas transaction cleared at the bottom of a HK$29.75–$30.75 range for a 9% discount.

Anta shares stayed mostly above the sell-down price on Wednesday but closed slightly lower at HK$131.30. Shares in China Gas closed at HK$29 on Thursday, 2.5% below the placement price after trading as low as HK$28.10 at one point.

"For stocks which are not that liquid, issuers and vendors really have to compromise on pricing if they want a sizable deal. It’s not the type of market where everything can sell,” said a banker away from the transactions.

“For a deal (China Gas) that represents so many days of the company's daily turnover, investors would want a bigger discount," the banker said.

On average, around 6.5m shares of China Gas changed hands daily in the past 30 days, according to Refinitiv data. The placement represents about 60 days of trading.

By contrast, Meituan's 187m share placement represented only 5.6 days trading.

Goldman Sachs and UBS were the joint global coordinators on the China Gas deal, and joint bookrunners with HSBC.

Bank of America, JP Morgan and Morgan Stanley were bookrunners for the Anta transaction.