Doosan Heavy Industries & Contractors has sold just over half of the treasury shares sitting on its books, raising W302.34 billion ($287 million), sources said.
The deal was launched and completed after the market closed on Wednesday and was upsized in full from a base deal of about $200 million after domestic investors came in with very decent order sizes. Overall, the demand was said to be split roughly half and half between domestic and international investors, with the international interest skewed towards hedge funds.
As of late last night there was no information of how the allocations were divvied up.
Doosan Heavy, which is one of Korea’s largest engineering, procurement and construction (EPC) contractors with a focus on power, water treatment and industrial plants, initially offered 6.6 million treasury shares at a fixed price of W31,825 apiece. The company said it may sell up to 2.9 million additional shares in case of demand.
The fixed price translated into a 5% discount to Wednesday’s close of W33,500, which is the maximum allowed for a sale of treasury shares in Korea.
Investors seemed to like the fixed price since it made it a plain and simple deal. It also speeded up the process and the order books were closed after just three hours. Of course, it also helped that the bookrunners had lined up enough international demand to cover about half the $200 million base deal at launch.
The final deal size of 9.5 million shares accounted for 8.9% of the company and 56.5% of the 16.8 million treasury shares that Doosan Heavy held on its balance sheet before the deal. One source said there was enough demand to sell even more shares, but 9.5 million was the maximum that the company had flagged in a filing and hence the most that it could sell at this time.
Most of the demand came from Asia, complemented by a few orders out of Europe. Onshore US investors were largely absent, but weren’t given much of a chance either since the order books closed at 7:30pm Hong Kong time. In all, close to 60 accounts participated in the deal, the sources said.
The domestic demand may have been underpinned by the fact that domestic investors were unable to participate when another entity in the Doosan group – construction machinery maker Doosan Infracore – raised $400 million from the sale of global depositary receipts earlier in the week. GDRs are only open to international investors.
Doosan Heavy too had initially planned to sell GDRs and stories in the local media at the end of August suggested that it may raise as much as $500 million. Those plans were called off sometime in mid-September but since it is well known that the Doosan group is aiming to deleverage its overall balance sheet, the potential for an equity capital raising has continued to hang over the stock.
Indeed, the share price has fallen 30% since mid-September and is currently trading at a 52-week low. That, together with the fact that Asian markets were pretty weak on Wednesday — the Kospi index in Korea was off 0.8% and Doosan Heavy itself fell 3% — made the timing of the deal a bit surprising.
However, sources said the company was keen to get the capital-raising out of the way to remove the overhang and after wall-crossing a number of international investors on Tuesday, the bookrunners were confident that there would be enough buyers for the base deal at least.
Also, analysts remain mostly positive about the stock, with 24 out of 27 firms having a “buy” recommendation on it. The average 12-month target price is W55,127, which implies 65% upside from the current level.
The money raised will be used mainly for deleveraging and general balance sheet management.
Doosan Heavy still owns 7.3 million treasury shares that are valued at about $220 million at the placement price. The company will be locked up for 90 days following this trade, however.
Credit Suisse, Morgan Stanley and UBS were joint bookrunners for the transaction.
