New World sells 262m shares of China subsidiary
Group offers put option to buyers of the stock to compensate for price premium
New World Development has sold 262 million shares of subsidiary New World China Land, pricing the placement at a rarely seen premium while bundling it with a put option to protect investors.
The unusually structured offer enabled the developer, which rejoins the Hang Seng Index on June 6, to avoid booking losses on $1 billion worth of New World China shares it acquired after underwriting a poorly received $6.31 billion rights issue last month.
To entice investors to pay $2.90 each, or a 6.4 per cent premium, for shares that closed at $2.725 on Monday, the placement came with an attached put option allowing them to sell the shares back to the parent firm at the placement price after two years.
'The option gives protection on the downside,' one market source said. 'Investors will only bear interest and opportunity risks.'
New World was compelled to sell the shares by rules that mandate a 25 per cent free float for all listed firms. The placement reduces its stake in the subsidiary to about 73 per cent from 81 per cent.
'All the proceeds will be used as general working capital,' a New World spokesman said.
New World China's three-for-two rights issue last month, priced at $2.80 per share, was only 83.36 per cent subscribed, obligating the parent firm to buy the remaining shares. Had it placed the unwanted equity at or below the last trading price, it would have booked losses of at least $19.65 million.
Observers said New World was fortunate to be able to offload the shares amid poor market sentiment for mainland property stocks, which are under pressure as Beijing increases efforts to cool the market in Shanghai and other key cities.
A source close to the deal said the placement had been fully covered last night, mostly by institutional investors from the United States and Europe. The final price was at the bottom of an indicative range of $2.90 and $2.95.
'Most investors were reluctant to pay more than the minimum price due to concerns that [New World China] may soon turn to the equity markets again to raise funds,' he said.
Nonetheless, the success of the offering was seen as something of a coup, as almost all placements are conducted at significant discounts.
One source said New World China shares had been trading at a discount of more than 50 per cent to net asset value, suggesting upside potential for the stock in the near future. The stock has lost 3.27 per cent this year.
Placing agent Tai Fook Securities declined to comment on the offering yesterday.