A HK$18.8bn (US$2.4bn) primary follow-on from British life insurer Prudential set a precedent for Hong Kong retail investors to participate in a share placement and reinforced the city’s status as a major international financial centre.
London and Hong Kong-listed Prudential announced the fundraising plan in January, saying it would be executed after the completion of the demerger of its Jackson US business.
The insurer could have carried out the plan in London or Hong Kong, or both, but decided on a Hong Kong-only share sale to help raise its brand awareness in Asia.
A Hong Kong offering would also maximise the allocation to Asian investors and increase its Hong Kong counter’s liquidity. Prudential listed by introduction in the city in May 2010, meaning it did not sell any shares to raise funds and leading to thin trading.
To maximise retail participation, Prudential pioneered a unique offering structure with a Hong Kong public offer and preferential offering to employees and agents in the city.
This was the first time Hong Kong retail investors were able to participate in a share placement from a locally listed company. Primary and secondary follow-ons of Hong Kong-listed companies had always been done overnight without retail participation.
The deal hit the market in September and was run as a Hong Kong IPO. Prudential kept the institutional books open for five days and the retail tranche for three and a half days.
The risk of a marketed transaction was spelt out on the first morning of bookbuilding as embattled property developer China Evergrande Group’s debt crisis wreaked havoc on Hong Kong’s stock market.
Partly as a result, the Hong Kong shares of Prudential fell 9.2% to HK$143.30 that day and the London shares lost 8.4% at £13.24.
Despite the market jitters, the deal was quickly covered with anchor support from sovereign wealth funds. Eventually, the institutional tranche was over 5.5 times subscribed with demand of US$13.3bn while the 5% retail tranche was 1.43 times covered.
The offer of 130.8m primary shares, representing a 5% capital increase, was priced at HK$143.80 per share, representing a 2.9% discount to the pre-deal close.
The offering successfully attracted Asian investors, who took 72% of the deal, while 20% went to the US and 8% to Europe. By investor type, 68% of the institutional tranche went to long-only investors and sovereign wealth funds, 31% to hedge funds and 1% to private bank clients and others. Existing shareholders took 47% of the deal.
Following the deal, the one-month average daily trading volume for Prudential’s Hong Kong shares increased from US$0.1m to US$5.2m.
Citigroup, Goldman Sachs, Citic Securities and HSBC were joint global coordinators, and joint bookrunners with Bank of America, Credit Suisse, UBS and UOB Kay Hian.
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