Doosan Bobcat will press ahead with one of Korea's biggest initial public offerings of the year after Korea Exchange approved its listing application on Tuesday.
The construction machinery manufacturer is valued at about W5.2 trillion ($4.4 billion), according to an independent evaluation by EY, a figure that suggests the company could raise about $1.1 billion, assuming a 25% free float.
The IPO is set to kick off a busy and lucrative second half for sizeable, internationally-marketed listings in Korea, after a first half dominated by issues from small, local companies.
Besides Doosan Bobcat, contract drug manufacturer Samsung BioLogics and mobile game developer Netmarble Games are expected to list by the end of the year. The pair are tipped to raise $4 billion between them, potentially boosting Korea’s IPO volume to its highest in six years.
That follows disappointment in the first half of the year, when an investigation into bribery allegations derailed the W5.7 trillion ($4.8 billion) IPO of Hotel Lotte. The listing of Hotel Lotte, Lotte Group's duty free chain and hotel business, would have been the biggest IPO in Korean history.
As such, Doosan Bobcat will serve as an important gauge of foreign investor sentiment, more than a year after the last internationally-marketed IPO out of Korea, the $307 million domestic listing of Innocean Worldwide.
Profile
Doosan Bobcat manufactures compact construction machines primarily used in house building. The company’s main product lines include skid-steer loaders, track loaders and mini excavators.
It is majority-owned by Doosan Infracore, the flagship company of chaebol Doosan Group, as well as affiliate Doosan Engine. Between them, the two companies own 78.4% of Doosan Bobcat.
The majority of Doosan Bobcat’s assets, including the Bobcat brand, were acquired from US industrial conglomerate Ingersoll Rand for $4.9 billion in 2007, in what was then Korea's largest outbound M&A transaction.
One source familiar with the company said Doosan Group had intended to list the assets immediately after the acquisition in 2007, but the plan stalled after the global financial crisis a year later left the American housing market devastated.
Doosan Bobcat is the largest compact equipment manufacturer by sales in North America and its business is tied strongly to the housing markets in the region. About 70% of the company’s revenue was generated from North America last year.
In recent years the company has been diversifying its geographical exposure by expanding into new markets such as China and Southeast Asia.
US market recovery
The company's management is reviving the listing plan this year because it has recorded exponential growth over the past few years thanks to the recovery of the US housing market, according to the source.
Since hitting a trough of 3.5 million in July 2010, home sales in the US have been gradually picking up alongside improvement in employment figures and prolonged low interest rates. In May this year, US home sales reached 5.5 million, the highest level since March 2007.
Naturally, Doosan Bobcat has therefore been able to sell more of its construction equipment.
As a result of rebounding home sales, Doosan Bobcat’s Ebit (earnings before interest and tax) have grown at a compound rate of 25% annually over the past five years, while those of its parent Doosan Infracore have contracted in the same period.
In 2015 Doosan Bobcat recorded net profit of $135 million while Doosan Infracore booked a net loss of $750 million.
Debt reduction
While the structure and terms of Doosan Bobcat’s IPO have not yet been finalised, the majority of shares offered will likely be existing shares held by Doosan Infracore and Doosan Engine, because Bobcat does not have major capital expenditure plans in the next few years, the source told FinanceAsia.
Doosan Bobcat has a net debt of $1.2 billion due 2021, but the majority of it will be settled by operating cash flows.
In fact, the IPO will be more important to Doosan Infracore because it will help reduce its soaring debt, part of which was accumulated in the Bobcat purchase nine years ago.
As of the end of March, Doosan Infracore had W4 trillion ($3.7 billion) in short-term debt, nearly 10 times its cash holdings of $374 million.
To further reduce its debts, Doosan Infracore agreed to sell its machine tool business to private equity firm MBK Partners for $984 million earlier this year.
After the spinoff, Doosan Infracore will focus primarily on its engine business and will continue to supply to Doosan Bobcat.
Timetable
According to the tentative timetable, Doosan Bobcat plans to start pre-deal investor education for the IPO in early September before an official deal launch in the middle of the month. If all goes well, trading of shares could start in early October, according to the source.
JP Morgan and Korea Investment & Securities are appointed joint lead managers of the IPO. Credit Suisse, HSBC, Hanwha Investment & Securities and Shinyoung Securities are co-managers.
The listing of Doosan Bobcat is set to create the sixth listed company under Doosan Group. Currently the listed companies are Doosan Infracore, Doosan Corporation, Doosan Engine, Doosan Engineering & Construction and Doosan Heavy Industries & Construction.
