The Korean ministry of strategy and finance has reduced its stake in Industrial Bank of Korea (IBK) through a block trade, raising W264.94 billion ($250 million).
The deal, which was launched and completed after the market closed on Tuesday, came just a week after two other government entities offloaded shares in Korea Electric Power Corp (Kepco) and Daewoo Shipbuilding and Marine Engineering, suggesting a slight acceleration of the government’s privatisation efforts before the year end.
The shares were offered at a fixed 5% discount to the latest close, which is pretty wide for a Korean block trade – especially considering that IBK is a bluechip policy bank and that the seller was the government. Investors clearly agreed since the initial deal ended up multiple times subscribed, which allowed the bookrunners to upsize it by about 77%.
A second smaller transaction that was in the market at the same time, in Hong Kong-listed CIMC Enric Holdings, was also well received and priced above the bottom of the range for a total deal size of HK$936.8 million ($121 million).
Industrial Bank of Korea
IBK focuses on the provision of development finance and other banking services to support small and medium-sized enterprises in Korea. It was 68.8% owned by the government before this sell-down and a further privatisation has been at the planning stage for years.
The ministry initially offered about 13.16 million shares at a fixed price of W11,400, which represented a 5% discount to Tuesday’s close of W12,000. However, the strong demand allowed it to upsize the transaction to approximately 23.24 million shares.
The base deal amounted to about $142 million, but, according to one source, the government’s objective was to sell more than that and investors were told at launch that the deal may be upsized – although not by how much.
The relatively attractive discount would have helped to draw people in and by offering the shares at a fixed price, the bookrunners were able to make the most of the demand without having to worry about it affecting the final price. Investors weren’t allocated in full though and the deal was said to be “pretty well covered” at the enlarged size as well.
In most other markets, a 5% discount might be viewed as a bit on the tight side for a deal that accounts for more than 40 days of trading volume – at the final size this deal accounted for 43 days based on the average turnover in the past month – but sellers of Korean bluechips have come to expect, and become used to, very thin discounts in the past couple of years.
The three government-linked sell-downs in the past week are showing a less aggressive approach, which is encouraging for the Korean market. If it is slightly easier for investors to make money on overnight placements they may become keener to participate, which in turn should allow more deals to come to market.
The $322 million block in Daewoo Shipbuilding and Marine Engineering last week came at a fixed 3.9% discount, while the $260 million clean-up trade in Kepco was priced 4% below the latest close.
At the final size, the IBK transaction accounts for 4.2% of the company and will reduce the government’s stake to about 64.6%. The rest of its shares will be locked-up for 90 days.
The demand was split almost 50-50 between foreign and domestic Korean investors, with the interest out of the US said to be particularly strong. Most of the orders came from existing shareholders, although the overall demand was said to be slightly skewed towards hedge funds.
There was no information late last night about the total number of orders, but the number of international investors was said to be greater than 50.
The deal comes as IBK’s share price has been trending lower from its most recent peak at W12,600 in mid-October. And despite the earlier rebound from a 2013 low of 10,800 in late June, the stock is up just 1.3% year-to-date. This is in line with the benchmark Kospi index, however.
Bank of America Merrill Lynch, JP Morgan, Samsung Securities and SK Investment & Securities were joint arrangers of the transaction.
CIMC Enric
CIMC Enric is majority-owned by China International Marine Containers, which in turn is part of the state-owned Cosco Pacific group, and focuses on the development and manufacturing of transportation, storage and processing equipment for the energy, chemical and liquid food industries.
Just over half of its revenues come from the energy segment, specifically equipment for the transportation and storage of liquid and compressed natural gas, and the share price has had a good run in the past year as China continues to open up its gas market.
The block of shares that were sold by a former director of the company on Tuesday has acted as a bit of an overhang, however, and the fact that this has now been removed was seen as a positive by investors, according to a source.
Investors knew that this may be the last chance in a while to buy shares in bulk in this stock outside the secondary market since there are no other obvious positions expected to come up for sale and the company doesn’t need new capital. Since the stock is pretty illiquid, and hence difficult to buy in the secondary market without a major impact on the price, that helped boost the demand for the sell-down, the source added.
The former director, Petrus van der Burg, offered approximately 80.07 million shares at a price between HK$11.59 and HK$12.10, which translated into a discount of 4% to 8% versus Tuesday’s close of HK$12.60.
A source said there was enough demand to price in the top half of the range, but in order not to lose a couple of existing shareholders that were wall-crossed before launch, the final price was fixed closer to the low end, at HK$11.70 per share. This resulted in a 7.1% discount.
The sale, which was done through a company called PGM Holding, accounted for 4.2% of the issued share capital and about 20 days of trading volume.
The deal attracted close to 60 investors and was multiple times covered, according to the source. About 70% of the shares went to long-only funds, including global accounts. Like IBK, the deal was supported by a number of existing shareholders.
Aside from the general positive momentum in China’s natural gas industry, CIMC Enric has also been delivering strong earnings and most analysts are positive on the stock. Of the 15 analysts that cover the company, according to Bloomberg data, 12 have a “buy” recommendation on the stock. The average 12-month target price is just above HK$13, but of the six analysts who have updated their numbers in the past month, five have a target price of HK$15 or higher, implying a potential upside of about 20%.
The share price reached a record closing high of HK$12.96 last week (on November 21) and is up 82% so far this year. However, the stock is pretty volatile and after reaching a high of HK$12.78 in early July it fell just over 40% to around HK$7.30 before rebounding again.
Standard Chartered was the sole bookrunner for the transaction.
