Citystate Savings secondary stake acquired by listed HK corporation

Citystate Savings Bank [CSB 8.94, up 50.0%; 2998% avgVol] [link] revealed that “certain stockholders” have entered into a share purchase agreement with CS Capital Investment Pte. Ltd. (CSCI), which is a Singapore-registered subsidiary of the Hong Kong-listed CSC Holdings Limited (CSCH). The sale of shares by the unnamed CSB shareholders to CSCI will account for 26.8% of CSB’s outstanding shares, for a final aggregate price that is not to exceed P750 million. That stake had a market value of P258 million at the close of business on Friday last week but is now worth approximately P388 million this morning after CSB’s stock price went up by 50% following this disclosure. CSCI said that they’ve been “exploring various opportunities for investment projects”, and that “the acquisition is a strategic investment of [CSCI] and represents [CSCI’s] first step to implement financial business investment strategy.” CSB said that it welcomes the entrance of CSCI as a significant shareholder, as it “establishes a strategic partnership between the controlling shareholders of the bank and CSC”, whereby CSB stands to “benefit from the global experience, market reach, and technological resources of CSC, in line with the mandate of the Banko Sentral ng Pilipinas (BSP) and the Bank’s own direction towards digitization.”

 

MB bottom-line:  It’s important to note here that this sale is a private (secondary) sale between existing shareholders and CSCI. If you think of CSB as a car dealership and of its shares like cars, then this transaction is like a bunch of car buyers banding together to sell their used cars in a batch to some completely unrelated new buyer. The money that the new buyer is paying will go only to that bunch of first car buyers, not to the car dealership itself. If CSCI were buying the cars (shares) from the car dealership (CSB) directly, we’d call that a primary sale and the dealership (CSB) would get the cash that it could then use to grow and improve its business. Here, though, the money doesn’t go to CSB, it goes to the sellers of the used cars. We’d call that a secondary sale. It’s possible that the sellers could put some of that money back into CSB through a private placement or something (like using the proceeds to buy some new cars from the dealership, to continue torturing my bad analogy), but we don’t have any insight into the minds of the sellers to know what they might do with the proceeds. 

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