Doosan raises $154 million on busy day for new issues

Doosan Heavy Industries and Construction, a Korean manufacturer of power equipment, last night raised W198.3 billion ($154 million) from a placement of treasury shares. The deal came on a busy day for equity issuance around the region, which may have distracted investors and taken some focus away from this particular offering. However, Doosan was able to complete its issue in a reasonable time despite a tight discount, while a couple of other deals were still going well after midnight.

A source said Doosan benefitted from the fact that investors took the sale by the company as a sign that Korea Development Bank, which owns about 7% in the company, does not plan to divest its stake in the near term. Widespread speculation of a KDB sale has acted as an overhang on the stock and has seen international investors go short, while domestic investors have stayed away amid expectations that the share price would continue to fall. Since it reached a 2009 high of W87,200 in early May, the stock has lost 21%.

As the expectations related to KDB's plans shifted, international investors saw last night's sale as a cue to cover their short positions and book some profit, while at the same time the local institutions sniffed an opportunity for the share price to resume its uptrend. The result was that both groups were buying last night.

"Essentially one group is leaving the party, while another is joining," said the source.

That said, demand was solid rather than overwhelming and the deal, which accounted for 2.9% of the company, was priced at the bottom of the indicated range. Although this was not too surprising given the initial terms were tight.

It is also possible that investors were a bit cautious towards block trades after Xinyu Hengdeli Holdings, China's largest distributor of luxury watches, tumbled 19.9% yesterday on the back of a HK$618.3 million ($80 million) top-up placement on Wednesday night. The deal was priced at the bottom of the indicated range for a 10.3% discount to the latest close and was said to have been placed with more than 30 investors, including a few good quality anchor investors. Clearly, not everyone wished to hold on to the stock for the long-term, however.   

Doosan offered 3 million treasury shares at a price between W66,100 and W67,100, which represented a discount of 2% to 3.5% versus yesterday's close of W68,500. The final price was set at W66,100 for a 3.5% discount.

All in all, more than 30 investors participated in the offering, with a slight overweight towards international institutions, including both long-only accounts and hedge funds.

Doosan told investors that it will use the proceeds partly to lower its gearing, which it defines as liabilities-to-equity. The target is to reduce this ratio to around 200% from above 220% at present. But some of the money will also help fund a number of earlier announced acquisitions to ensure that they will close according to plan. Earlier this week a Korean newspaper reported that Doosan is also seeking to buy Skoda Power, a power equipment maker based in the Czech Republic, in a deal that may cost it as much as W800 million ($630 million). A successful acquisition of the Czech company, which is up for sale through a tender, would boost Doosan's power plant equipment business, which analysts say has been a target for some time.

J.P. Morgan was the sole bookrunner both for the Doosan trade last night and for Xinyu Hengdeli's placement a day earlier.

Meanwhile, Hong Kong property developer Chinese Estates Holdings was also in the market yesterday trying to raise at least $200 million from a top-up placement, while Farallon Capital Management was attempting to sell its entire stake in Indonesia's Bank Central Asia to raise about $340 million.

The Chinese Estates sale comes on the back of a tripling in the share price over the past seven months and was being marketed at a discount of 7%-13%. Despite having opened the order books at the start of Hong Kong trading yesterday, the deal was still not completed in the early hours of this morning, although investors were told by bookrunners BNP Paribas and Deutsche Bank that the deal was covered.

The Bank Central Asia block was offered at a 4.6% to 10.5% discount through Credit Suisse.