Temasek lowers offering price for Hana shares

Temasek Holdings managed to sell its entire 9.6% stake in Korea’s Hana Financial Group yesterday, but not before it lowered the price below the original offering range. The final price, W33,400 per share, represented a 6% discount to Wednesday’s closing price and allowed Temasek to raise W680.86 billion ($603 million).

When the deal was launched after the close of Korean trading on Wednesday, the Singapore investment firm offered the shares at a much tighter discount between zero and 3.5% versus that same closing price, which implied a deal size between $619 million and $640 million.

According to a source, the plans changed when Credit Suisse, as the sole bookrunner of the deal, started marketing the transaction to US investors half way through the evening and encountered a few high-quality investors who said they were interested in the name, but thought the discount too tight. However, they would buy in size if the discount could be widened to 6%.

Clearly these guys were considered important additions to the shareholder base because Credit Suisse went back and discussed the situation with Temasek who agreed to lower the price to get these US accounts into the book. As a result of that, the deal was effectively re-offered to Asian investors yesterday morning before the Korean market opened and not surprisingly, they were happy to participate at a lower price too, which allowed the book to come together in time.

The final order book was said to have included a few hedge funds and about 40% of the demand came from domestic Korean investors. There was no information on how much of the deal was eventually bought by US investors. In all about 50 investors participated in the transaction.

It is interesting that Temasek would agree to a lower price as it was selling its entire stake in Hana. Therefore it won’t be impacted by whether the shares are bought by high-quality long-only funds or momentum players. However, as a long-term investor in the Hana group – it first bought shares in Hana Bank in March 2004 and topped up its holdings in December 2005 after the group was restructured and re-listed as Hana Financial Group – Temasek was still keen to do right by the Korean company and chose to prioritise getting the best possible order book rather than the best price, said a source.

It may be well be that the Singapore investment company also didn’t want to be seen as too greedy by investors, as it may well be planning to monetise other assets in its $186 billion portfolio in the near term as it continues to shift its focus more towards the commodities and resources sector.

What made a lowering of the price possible in the first place though, was the fact that the block had supposedly not been up for competitive bidding. If that had been the case and Credit Suisse had won the deal based on a promise to sell the shares at a maximum discount of 3.5%, it would never have been able to renegotiate with the seller and would have had to cover the entire loss on its own. It is still possible that the bank had to sacrifice part of its fee to push the discount to 6%, but supposedly it didn’t have to give it all up.

The market didn’t respond as well to the reduced price, however, which would have suggested that there wasn’t a lot of demand for the stock at current trading levels. This would have been particularly sensitive since Hana’s share price had just started to head lower following a six-week winning streak that saw the stock advance 22% to a high of W37,300 last Friday. When the placement was launched, the share price had already dropped 4.7%, making this the third time in the past 12 months that the stock has reversed course after getting close to the W38,000 level.

The share price fell 7.3% in Korean trading yesterday to a close of W32,950 – 1.3% below the placement price.

Temasek sold 20.385 million shares, which represented 9.6% of the company and about 16 days worth of trading. The initial price range was set at between W34,300 and W35,550.

While Temasek offered no explanation as to why it was selling its stake in Hana now, observers noted that it has committed to take up its share of Standard Chartered’s ongoing GBP3.26 billion ($5.1 billion) rights issue in full. Temasek owns approximately 18% of the UK-based emerging markets focused bank, which suggests an outlay of about $925 million. And on top of that Temasek is also participating in the sub-underwriting of the rights issue, according to a Standard Chartered release.

Earlier this week, Temasek also announced that it has invested $400 million Odebrecht Oil and Gas (OOG), a Brazilian company that provides integrated solutions to the upstream oil industry, in return for a minority stake. The money provided by Temasek will be used for fresh investments and to support the company’s growth strategies in Brazil and international markets such as Angola and Latin America.

The investment together with the sale of the Hana Financial shares will help Temasek to shift the proportion of its portfolio more in favour of energy and resources investments, while at the same time slightly reducing its significant exposure to the financial sector. As of the end of March this year, 37% of its investment portfolio was in financial services companies, compared with only 6% in energy and resources.