Government entity sells $102 million worth of Hynix shares

Korea Deposit Insurance Corporation (KDIC) has sold a stake in Hynix Semiconductor ahead of an expected sale by the Korean memory-chip maker's creditors in the second half of this year.

KDIC's holdings are entirely separate from the creditors' stake and also much smaller. The government investment vehicle last night sold its entire position, which amounted to no more than 0.75% of the company. By comparison, the creditors still hold 21.4%.

The 4.41 million shares were offered at a fixed price of W28,200, which allowed the seller to raise W124.4 billion ($102 million). At less than one day's worth of trading volume, this block could probably just as easily been offloaded in the market, but sources note that KDIC tends to make its divestments quite formal. So, even though the size was small, there was even a request for proposals a while back with Daewoo Securities and Goldman Sachs winning the joint bookrunner mandates.

The fixed price was equal to yesterday's closing price, making this the third Korean block trade this year to achieve a 0% discount; the other two were a creditor sell-down in Hynix in mid-March and a sell-down by KDIC in Woori Finance Holdings in early March. These other deals were significantly larger both in relation to market cap and the absolute deal size -- the Hynix trade amounted to $817 million and the Woori transaction raised $1.03 billion -- so it is perhaps not surprising that this comparatively small offering would also be able to price flat to the market.

However, the equity capital markets are looking a lot less stellar now than they were a couple of months ago, with investors having become selective in their investments and Agricultural Bank of China's giant upcoming initial public offering acting as a bit of an overhang on the market. Numerous initial public offerings, in Asia and globally, have been either cancelled or postponed in the past month.

Hynix's share price has also been on an upward trend in recent weeks, gaining 18.7% since it hit a two-month low of W23,750 on May 20. The gains reflect the strong performance of the Korean market overall as it has shrugged off earlier concerns that the sovereign debt crisis in Europe would hit Korea's export-dependent economy. Hynix's shares added 3.3% yesterday before the block trade.

The fact that the shares were offered at a fixed price would have helped to speed up the transaction, but sources say bankers and investors alike were quite keen to get the deal done as quickly as possible so that they could turn their undivided attention to South Korea's encounter with Argentina in the World Cup yesterday evening.

Accordingly, the offer was launched shortly after the Korean market closed and books closed after about three hours, with allocations completed in time for kickoff. Unfortunately, the Koreans didn't quite live up to the hopes of the nation and Argentina won the match by four goals to one.

As is usually the case for blue-chip Korean names, there was strong demand from domestic accounts, although one source said there was also decent interest from international investors with a couple of blue-chip long-only funds in particular putting in quite sizeable orders. Overall about 30 investors participated.

Some observers say they believe the primary markets will improve as it becomes clear that Agricultural Bank's IPO, which is expected to raise more than $22 billion, will be successful, and note that the deal should help to remove some of the less rational concerns that are plaguing the market at the moment.

"In the past, the markets have been quite weak going into the big Chinese bank deals, but have performed well afterwards," one source said.