Daum Communications, a Korean internet portal, plans to raise about $180 million by selling American depositary receipts (ADRs) on Nasdaq to help boost its stock price at home, raise its profile internationally and fund acquisitions.
Seoul-based Daum plans to sell the ADRs for about $18 each. The ADRs will be equivalent to a fifth of the underlying shares. An additional 300,000 shares, or 60,000 ADRs, will be set aside for an overallotment option. The company plans to begin a roadshow shortly, starting either in Hong Kong or Japan. It expects the offer to close 23 July. Merrill Lynch and Credit Suisse First Boston are managing the sale.
The proposed sale is the latest in a series by Asian internet-related companies seeking to tap the US equity markets. In the past few weeks, Indian portal Rediff.com successfully sold ADRs on Nasdaq and Silverline Technologies, an Indian information technology company sold ADRs on the New York Stock Exchange. Daum listed on Korea's Kosdaq exchange in November 1999. Since then its shares have fallen to W112,000 ($112) from a 52-week high of W298,000 in February. That's something the company wants to change.
"If investors from the US, Europe and Asia invest in our company it will show investors in Korea who think Daum is a bubble that they are wrong and that they can believe in us," says Cho Nan-urk Nucho, a Daum director. "We also want to have an international investment profile because we want to be an international company." Cho says the company generates revenue from sales to Spain and Italy and it is expanding into China, Japan and South Asia.
Cornered market
Of Korea's 15 million or so internet users, 11.8 million were registered with Daum as of the end of May. This results in 45 million pageviews per day. About 50% of all internet users in Korea use Daum's e-mail. While it has several unlisted competitors such as Netian and Skylove, Daum's nearest rival is Yahoo! Korea. Daum's advantage over Yahoo! is that it has greater 'stickiness', analysts say. That's because it offers community chat rooms and free e-mail.
"Once you get accustomed to sending e-mail using the Daum site you're not going to go elsewhere and look for another provider," says Christina Choi, an analyst at Dresdner Kleinwort Benson. "So they have a very strong position in the stickiness area."
Daum's website provides e-mail, shopping, news and entertainment. It derives about 60% of its revenue from advertising. The company had net income of W8.9 billion in 1999 compared with a loss of W59 billion in 1998. It had revenue of W7.7 billion in 1999, up from W1.7 billion in 1998. Its net income in 1999 was boosted by income from cash investments. It expects to make an operating profit from next year.
In 2000 Dresdner predicts the company will have revenue of W26 billion. Net profit should fall to $7.5 billion, due to higher advertising spending.
"They spend about a third of what Yahoo spends on advertising and have plans to increase that spending in July," Choi says. "So while revenues will go up, operating expenses will be a lot this year, which will affect net profit."
