Cheil Industries, the de facto holding company for Samsung Group, will formerly begun bookbuilding on Monday for an initial public offering that could net Korea’s largest business $1.4 billion.
The syndicate for Cheil began gauging investor interest just days following Samsung SDS’s IPO in October and is hoping to replicate its success.
Samsung SDS’s international tranche was 45 times oversubscribed, allowing the issuer to price its shares at the top of the indicative price range and raise $1.1 billion on October 31. Its aftermarket performance has also been impressive — Samsung SDS is up 110%.
As such, Cheil has not had any difficulty garnering interest. “Judging on SDS, which was quite oversubscribed, I think this one can only be better. The company is the de facto holding company for the entire group,” one banker close to the deal told FinanceAsia.
“It’s been pretty popular so far,” a second banker said. “There’s a lot of decent-size preliminary orders [and all] indications are that it’s already oversubscribed.” Most of the orders so far are coming from Asian institutions and hedge funds.
Cheil’s IPO comes as South Korea's largest conglomerate reorganises ahead of an expected once-in-a-generation change in leadership. Lee Jae Yong, heir apparent to the Samsung Group, will likely step up and take control of the company after his 72-year-old father was hospitalised in May.
If Cheil raises $1.4 billion, it will become the largest IPO in Korea since Samsung Life Insurance’s $4 billion flotation in April 2010.
Some 28.7 million shares are on offer at an indicative price range of W45,000 to W53,000 per unit, which will net the company W1.3 trillion to W1.5 trillion ($1.2 billion to $1.4 billion).
Half of the deal will be made available to institutional investors, while 20% will be allocated to the domestic retail tranche, 20% for the employee share buyback programme and 10% for a high-risk, high-yield investment trust tranche, according to a term sheet.
Unlike Samsung SDS, which was entirely secondary, Cheil’s offering will have both a primary and a secondary split. Some 65% of the deal, or 18.7 million shares, will be sold off by existing shareholders, while 35%, or 10 million, will be made up of primary shares.
Selling shareholders include Samsung Card, set to offload 6.25 million shares, and KCC Corp, which plans to sell 7.5 million shares.
KDB Daewoo Securities is acting as global coordinator and joint bookrunner along with Citi, JP Morgan and Woori Investment & Securities. The bookbuild will last two weeks, with pricing scheduled for December 5.
Where are the comps trading?
Cheil operates in four sectors — theme park, construction, food and fashion. As such, there is no blended syndicate forecast on the valuation.
Bankers instead are viewing the company as four separate entities, and are therefore comparing each entity to companies in those sectors. For example, the fashion component is compared to clothing company and distributor LF Corp, department store operator Shinsegae and manufacturers Basic House and Handsome Corp.
LF Corp, Shinsegae Corp and Basic House are all reasonably in line and trading between 10.70 and 12.43 times 2014 earnings. Handsome Corp, however, which focuses on women’s and men’s apparel, fur and accessories, is a bit more expensive at 18.21 times earnings.
Globally, its fashion unit is being likened to Japan’s Fast Retailing, the owner of the Uniqlo brand and the largest retail store in the world. Fast Retailing is trading at 40.13 times its 2015 earnings. The Tokyo-listed company held a secondary listing in Hong Kong in March by issuing depository receipts, allowing investors to buy and sell shares in Hong Kong dollars instead of yen.
Cheil's food service comparables include a number of local and global names, such as Hyundai Green Foods, Compass Group and the Sodexo Group.
Korean company Hyundai, which operates bakeries and cafes among its myriad of other businesses, is the cheapest of the three, trading at 17.94 times 2014 earnings. UK caterer Compass and French food services and facilities management company Sodexo are trading at 21.87 times and 20.16 times, respectively.
Construction peers, Hyundai Engineering & Construction and Daewoo Engineering, are trading at 9.78 times and 12.44 times, respectively.
The theme park comparables — all global — have valuations between 19 and 38 times. Japan’s Oriental Land Company is trading at 30.26 times book value, while Seaworld Entertainment is at 22.3 times. Six Flags Entertainment is the most expensive out of the theme park comparables at 38.11 times, and US company Cedar Fair is the cheapest at 19.67 times.
Restructuring
Upon taking over Samsung Group, Lee Jae Yong’s three heirs reportedly face inheritance taxes that could exceed $5 billion of their father’s $11.2 billion fortune. The SDS IPO was widely believed to help Lee pay down the inheritance tax on assets passed down by his father.
There is also reportedly political pressure to unwind the shareholder structure that allows the Lee family to maintain control of 70 companies with less than a 2% stake.
Cheil may very well benefit from the recent rebound in markets. The country’s KOSPI Index fell 8% from September 17 to October 17 amid a slide in equities globally but have since recovered and gained 3%.
Still, a number of Asian stock markets experienced a volatile week after Japanese Prime Minister Shinzo Abe prepared to dissolve parliament ahead of a snap election scheduled for December 14. The Nikkei 225 fell 0.78% from November 17 to November 21, although the Tokyo Stock Exchange remained mostly flat.
