By Prudence Ho
Chinese and Indian companies and their private-equity owners are
taking advantage of booming stock markets to sell shares, lifting
block trades in Asia to record highs.
These trades, in which companies or shareholders sell a large
block of shares to investors outside of the open market, have
reached US$29 billion year to date in the Asia-Pacific region,
according to data from Dealogic. The activity coincides with a
surge in Asian stocks--the MSCI Asia Pacific index is up 11% this
year. Markets in Shanghai and Shenzhen have been the region's best
performers, followed by Hong Kong, whose market is dominated by
Chinese shares. Indian shares, while flat this year, are up 29% in
the past 12 months.
Over the first four months last year, Asian stock markets were
falling, and block trades were less than half this year's--at
US$12.6 billion. The last time block trades had reached record
levels (US$23 billion) for the same January-to-April period was in
2013, when the U.S stock market was rising and Asian stocks gained
on the back of that advance. This year, the Dow Jones Industrial
Average is up 1.5% as if midday Monday in New York, although it
continues to break records.
"Equity markets overall have been going up in Asia, especially
the Hong Kong and [Chinese] A share-markets, triggering existing
shareholders to consider offloading their shares," said Hemant
Sabherwal, Asia director of equity capital markets at Deutsche Bank
AG.
Most of the selling has been of existing shares, as indicated by
the top four block trades this year. The biggest such trade was in
January, when the Indian government disposed of US$3.7 billion
worth of shares in state miner Coal India, followed by U.S. oil
giant Chevron Corp.'s exit from its US$3.7 billion stake in March
in Caltex Australia Ltd., which runs an oil-refining business in
that country. Australian stocks are up 7.7% this year, while Caltex
Australia shares had risen around 10% before the sale.
The third-biggest block trade this year was by Japanese drug
marker Daiichi Sankyo, which disposed of its US$3.2 billion stake
in Indian drugmaker Sun Pharmaceutical Industries. Ranking fourth
was a US$2.1 billion sale by Hang Seng Bank, a Hong Kong- and
China-focused lender owned by HSBC Holdings, of its stake in
Shanghai-listed Industrial Bank Co.
Mr. Sabherwal said he expects that, at some point this year,
companies will take advantage of rising share prices to sell new
stock. That, say fund managers, could be the point at which
investors become less comfortable buying shares, especially in Hong
Kong, where volumes have surged.
"Some investors, especially mainland Chinese investors, see Hong
Kong stocks at a bargain, and so are piling in to buy" the shares
of Chinese companies that trade at a premium on mainland bourses,
said Alex Wong, head of asset management at Ample Capital in Hong
Kong. But once more and more Chinese companies sell new stock,
investors may be more wary of buying shares, he said.
For now, block trades keep booming, as regional share prices
climb. The Shanghai Composite Index is up 39% this year, while Hong
Kong's Hang Seng Index has gained 19%.
Last month, Citigroup raised its forecast for the Hang Seng to a
record high of 32000 this year. The Hang Seng's closing level of
28123.82 Monday translates to about 12.5 times 2015 earnings, and
in previous bull markets valuations have reached 17 to 29 times
forecast earnings.
Bankers say Chinese companies catering to investor appetite for
stocks include banks, which benefit from a looser monetary policy
implemented recently, and insurers, which have chalked up strong
gains from their investments in the domestic stock market.
Other shareholders that have jumped on the block-trade bandwagon
this year have been private-equity firms cashing in on the market
rally and disposing of long-held stock. In April, for example,
Chinese private-equity firm Hony Capital, which bought U.K.-based
pizza chain Pizza Express last year, raised US$1.26 billion by
selling shares in CSPC Pharmaceutical Group Ltd., a Chinese maker
of vitamins and generic drugs. Hony bought into the company in
2007.
Meanwhile, initial public offerings in the region this year have
totaled US$21.7 billion, largely from a spate of Chinese brokerages
that have listed in Hong Kong and Shanghai.
Write to Prudence Ho at prudence.ho@wsj.com
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