An undisclosed institutional investor netted $129 million from a placement of shares in Korean construction company Hyundai Development Co yesterday (January 18). The deal marked the third Asian divestment by an institutional investor so far this year following sell-downs in Techtronic Industries and STATS ChipPac.
The block trades may suggest that fund managers believe Asian markets are becoming fully valued, or at the very least they underline an increasing willingness to use the capital markets to exit investments quickly and cleanly once they reach funds' target prices.
Yesterday's sale in Hyundai Development comprised 3.4 million shares, or about 4.5% of the company. The shares were marketed at Won37,300 to Won38,000 per share - a discount of 1.95% to 3.75% to yesterday's close of Won38,750.
Pricing was fixed at a 3.23% discount according to lead manager Credit Suisse, which was executing its first Asian capital markets transaction since dropping the "First Boston" moniker earlier in the week.
The book closed about one-and-a-half times covered when it closed at 9 am London time with participation from about 20 investors. About 30% of the deal went to domestic Korean accounts, with the majority of the rest staying in Asia. However, UK investors were also said to have taken a fair portion.
The timing of the sale surprised some investors given the slump in regional markets this weak after prosecutors on Monday raided the offices of Japanese Internet company Livedoor amid suspicions it had fudged financial reports and spread false information regarding an acquisition to boost its share price.
Weak results for US technology bellweathers Intel Corp and Yahoo Inc late Tuesday also dampened sentiment.
Korea's benchmark Kospi index has fallen 4.84% in the past two days alone, leaving it 1.92% down year-to-date.
Hyundai Development, which reached an all-time high of Won46,800 on December 27, fell 3.25% on Tuesday and another 3.26% yesterday, extending its 2006 losses to 15.4%. However, the share price is up 112% in the past 12 months, which means long-term investors are sitting on hefty profits. At its current trading level, the stock is valued at about eight times forward earnings.
"The client wanted to sell and was not necessarily put off by the events in the market," a Credit Suisse banker said, noting that the 3.4 million shares corresponded to roughly 11 days trading volume, which means it would have taken a long time to sell them in the open market.
Hyundai Development primarily focuses on the development of residential apartments, but is also involved in the construction of infrastructure projects, including roads and bridges. Analysts are positive about the company because of its large land bank and the potential for it to sell part of its equity stakes in some privately-funded SOC (Social Overhead Capital) infrastructure projects.
"The market value of HDC's equity stake in these projects should be significantly higher than its book value," one analyst said, noting that a decision from the company to sell was likely to be a catalyst for more share price gains.
In 2004, the company posted a net profit of Won209.8 billion on revenues of KRW2.595 trillion. It had a return on equity of 14.1%.
Last week, an institutional investor of Singapore-based chip testing and assembly service provider STATS ChipPac sold 121 million shares in the company through Deutsche Bank for S$124.63 ($76.4 milion), representing a 5.5% discount to the latest close.
A day earlier a similarly undisclosed vendor sold 34.65 million shares in Hong Kong power tool manufacturer Techtronic for HK$623.7 million ($80 million) at a 3.7% discount with the help of CLSA.
