Value Partners

Value Partners to offload shares in HK$2.9b listing

PUBLISHED : Thursday, 08 November, 2007, 12:00am
UPDATED : Thursday, 08 November, 2007, 12:00am


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Value Partners Group, a Hong Kong fund management house that managed US$6.4 billion at the end of July, plans to raise as much as HK$2.91 billion for two existing shareholders in an initial public offering this month.

Value Partners is offering 381.6 million existing shares in a price range of HK$6.78 to HK$7.63 per share, according to a sales document sent to fund managers.

Vendors of the shares are US private equity fund JH Whitney III, and Value Holdings, a subsidiary of US private equity group Holding Capital Management.

JH Whitney III invested in the fund house in 1998, and Holding Capital Management in 1995.

Cheah Cheng Hye, Value Partners' chairman, said he saw no issue with the two private equities selling their investment as they had been holding the shares for many years.

All private equities should sell their investments when the timing was right, he said.

After the listing, Mr Cheah will retain 35.7 per cent of the firm, while another founder, Yeh V-Nee, honorary non-executive chairman, will keep 18.3 per cent. JH Whitney will still own 19.8 per cent. Strategic investor Ping An Insurance (Group) also will keep 9 per cent.

Mr Cheah became the company's single largest shareholder in 1997 and has remained so since.

Value Partners kicked off the international roadshow yesterday and will end its offering on November 13. The retail tranche will be closed a day after.

Trading is scheduled for November 22. JP Morgan and Morgan Stanley are the joint sponsors.

'The offering was fully covered during the first day (yesterday), given its high reputation and proven investment track record,' said a source close to the deal.

Value Partners, which derives income primarily from management and performance fees linked to assets under management and on fund returns, is well known among local investors for its impressive return since the launch.

Starting with a fund of US$5.6 million in 1993, the firm has bet heavily on mainland stocks over the past decade, winning an average annualised return of 22.8 per cent.

The firm had US$5.7 billion in assets under management as of June.

The Hong Kong-based fund manager believes that relatively expensive mainland-related stocks will continue to be supported by strong domestic consumption growth and an anticipated rise in the yuan over the medium term, according to Value Partners' star fund manager Mr Cheah.

Value Partners Classic Fund, the first fund launched by the company in 1993, had US$1.06 billion under management in June. Other major funds include High-Dividend Stocks Fund with US$375.8 million under management, Chinese Mainland Focus Fund with US$183.4 million and China ABH Shares Fund with US$386.5 million.

The Classic Fund has risen 41 per cent in net asset value for the first nine months of this year, following a 42 per cent gain last year. The growth is in line with the performance of the Hang Seng Index, which was up 41.25 per cent by the end of September.

Other funds also recorded similar strong returns by the third quarter. The High-Dividend Stocks Fund gained 41 per cent, the Chinese Mainland Focus Fund rose 53 per cent, and the China ABH Shares Fund grew 67 per cent.

Value Partners charges an annual management fee and a performance fee.

The management fee is a percentage of the net asset value of the fund, which can range from 0.75 per cent to 2 per cent. The performance fees are charged based on the absolute performance of the funds.

Performance fees amounted to HK$367.3 million by the end of June this year, a 164 per cent growth from a year earlier.

Management fees reached HK$180.9 million, representing a 76 per cent year-on-year increase.

In the first half, performance fees accounted for 65.3 per cent of total income, and management fees made up 32 per cent.

To diversify and increase profits, Value Partners intends to expand its portfolio under the Value Partners Private Equity brands, according to the listing prospectus.

Assets under management in the company's private equity fund amounted to only US$118.4 million at the end of June, or 2 per cent of the total portfolio.

'Asset management, after all, will not bring in too much money; private equity investment is much more profitable,' said Francis Lun Sheung-nim, the general manager of Fulbright Securities.

Last month, Value Partners signed an agreement to invest US$30 million in Oasis Hong Kong Airlines in exchange for a stake of between 5 and 10 per cent.

The investment was deemed as a bid to help fund the carrier's fleet expansion for up to 2011.

What the analysts say

Ricky Tam Siu-hing, director, Champlus Asset Management

Pros: It is attractive to retail investors as many are familiar with the company

Cons: The stock price will be in line with the overall market performance

Francis Lun, general manager, Fulbright Securities

Pros: The company is well known and has a good investment record in recent years

Cons: The outlook is not rosy as fewer mainland companies are coming to list in Hong Kong

Michael Wong, research director, Hantec Investment International

Pros: The pricing is attractive

Cons: The earnings growth potential could be limited