CJ HelloVision to raise $267 million from IPO

CJ HelloVision, South Korea’s biggest cable-TV provider, will raise W293.21 billion ($267 million) from its initial public offering after fixing the price slightly below the mid-point of the range.

The company also cut the number of shares on offer by 3% to about 18.33 million. There was no explanation for the reduction, which seemed at odds with the fact that the deal was about 19 times covered at the bottom of the price range. And although institutional investors were price sensitive, it was still multiple times covered at the final price, one source said.

A possible reason may be that one of the three selling shareholders chose to sell fewer shares than originally planned once the deal was priced below the mid-point.

Whatever the explanation, the reduction isn’t really that material. The deal size is falling marginally to 23.7% of the issued share capital from 24.4%, but it is still the largest IPO in Korea so far this year. It is also the first one to be explicitly marketed to international investors. Before this deal, Dealogic put the total value of Korean IPOs at just $893 million, which is well below the $3.4 billion raised in 2011.

Observers have argued that HelloVision was the right company in the right sector to re-open the market, given its leading position in a sector that is providing both stable returns and good growth prospects. HelloVision is also offering good visibility on its future earnings, which is viewed as positive in an otherwise fairly uncertain economic environment.

On top of that, investors like pay-TV operators because of their exposure to consumer spending and the other two IPOs in the sector this year, by MNC Skyvision in Indonesia and Astro Malaysia, both saw strong demand for their offerings.

However, Astro Malaysia has struggled since its trading debut on October 19 and yesterday closed 7.3% below its IPO price. Some market watchers have argued after the fact that the premium pricing versus regional comps was too expensive, although the $10 billion of institutional demand (of which two-thirds came from international accounts) suggests that investors were initially comfortable with that.

The sell-off in Astro also didn’t appear to have much impact on the interest in HelloVision. According to the source, the deal attracted strong demand from tier-1 long-only accounts, both international and domestic. The majority of the demand came from long-only investors, but hedge funds were present as well.

In all, more than 220 institutions submitted orders. With the price fixed above the bottom of the range, quite a few accounts didn’t get allocated, however. There was no final split available, but the majority of the deal was said to have gone to international investors.

The shares were priced at W16,000 each after being offered in a range between W14,000 and W19,000. Based on a syndicate analyst estimate, the final price values HelloVision at 11.3 times its projected 2013 earnings, or at an enterprise value-to-Ebitda multiple of about 4.5.

This puts it at a discount to KT SkyLife, which provides satellite-based digital pay-TV services and is viewed as the key listed comparable. KT SkyLife fell slightly during the eight days that HelloVision was on the road, but according to Bloomberg data, it is still valued at a 2013 price-to-earnings ratio of 14.1 times and at an 2013 EV/Ebitda multiple of 7.6. The stock is up 64% since mid-May.

Meanwhile, Hyundai HCN, which is the fourth or fifth largest cable operator in South Korea and the first one to get listed, was a key beneficiary from HelloVision’s IPO. The stock gained as much as 17.5% and set a new record high during the marketing, although it lost some of that on the final two days. As of yesterday, HCN was valued at a 2013 EV/Ebitda multiple of 4.3, according to Bloomberg data.

HelloVision closed the institutional order books at 10am Korean time on Friday last week, but the final price wasn’t determined until yesterday. The offer to retail investors and employees will be open tomorrow and Thursday.

The company didn’t specify the new split between the tranches, but before the reduction of the number of shares, it was aiming to sell 60% of the deal to institutions, 20% to retail and another 20% to employees under the Employee Share Ownership Plan (Esop).

All the shares are secondary, although 47% of them (again, this is based on the original deal size) are treasury shares offered by HelloVision itself, which ensures that almost half of the proceeds are still ending up with the company. The deal comes with no greenshoe.

The rest of the shares are sold by three existing shareholders — AA Merchant Banking, Formosa Cable Investments, and Eugene Investment and Securities. They will each still own between 1.5% and 4.9% of the company at the time of listing and will be locked up for 90-days. The same lockup applies to the company.

In addition to its cable-TV business, CJ HelloVision provides high-speed internet and internet telephone services, which also makes it an alternative way to play the Korean telecom sector. It had about 3.2 million cable-TV subscribers at the end of June and provided high-speed internet access and internet telephone services to 690,000 and 580,000 subscribers respectively. It currently provides video services in 18 out of a total of 77 service areas in Korea, according to a preliminary listing prospectus.

The further digitalisation of the Korean TV market is viewed as a key growth driver, together with the company’s plan to grow its subscriber base through further acquisitions.

The company was founded in 1995 as a subsidiary of KT Corp under the name of Korea Telecom Cable Television, but was acquired by the CJ Group (it bought 93.3%) in 1999. It changed its name to CJ HelloVision in 2008.

The stock is scheduled to start trading on November 9.

Daewoo Securities, Hi Investment & Securities and J.P. Morgan were joint global coordinators and bookrunners.