Companies ride the bull market to lower debt with share placements
Cheaper and faster than bank loans, HK and mainland listed firms take advantage of bull market to undertake share placements to lower debt
Companies are taking advantage of the bull market in Hong Kong and the mainland to undertake share placements to lower their debt, a trend supported by Beijing after mainland corporate debt has soared to risky levels.
"This is a good time to do placement given the high valuations. The market has risen rapidly. A lot of the money will be to repay debt," said Francis Cheung, CLSA's managing director of China-Hong Kong strategy.
The Hang Seng Index has surged 14 per cent since mid-March, while the Shanghai Composite Index has doubled since October and the Shenzhen Composite Index has tripled in the past 12 months.
The bull run would boost the valuation of a listed company, which would enable it to raise more funds in a placement, said Alvin Cheung Chi-wai, associate director at Prudential Brokerage.
"The cost of share placements will be less compared to bank loans," he said. "Sometimes, a placement can be completed overnight in a bull run, but it may take a month for banks to come up with a loan of the same amount."
Johnson Chui, head of Hong Kong and China equity capital markets at Credit Suisse, said: "We have recently seen a heightened level of placement activity for Hong Kong-listed companies on the back of a supportive market environment and investor sentiment. Both issuers and vendors are eager to capture the market window in raising primary and secondary capital when it is still conducive."
Credit Suisse and Morgan Stanley were the placing agents of a HK$12.11 billion placement by Ali Pictures Group, announced by the Hong Kong-listed firm yesterday.
