A block of shares in Hyundai Motor, Korea’s biggest carmaker, changed hands last night as Hyundai Heavy Industries took advantage of a recent bounce in the share price to raise some capital. The Korean shipbuilder raised W704.75 billion ($614 million) after pricing the deal slightly above the bottom of the range.
The deal, which exceeded KCC’s $601 million January sell-down in Hyundai Heavy as the largest equity capital markets transaction in Korea this year, comprised about 3.2 million shares, which represented 1.45% of the company and slightly less than half of Hyundai Heavy’s stake. They were offered at a price between W219,500 and W228,500. The top end of the range was equal to yesterday’s closing price, while the bottom end translated into a 3.9% discount.
The offering attracted decent interest from both domestic and international accounts, although sources said some existing shareholders in the US came in at a smaller-than-expected size. Even so, the bookrunner was able to push the price slightly above the bottom of the range to W220,000 for a 3.7% discount.
While it seemed a bit tight at first glance, sources said the discount was reasonable given that the stock is quite liquid and the deal accounted for no more than five to six days’ trading volume.
According to one source, the deal was about 1.5 times covered with orders from more than 60 accounts. A bit more than one-third of the allocation was estimated to have gone to domestic funds, while the rest was split fairly evenly between international long-only investors and hedge funds. Aside from a few US and European accounts, the order book was heavily skewed towards Asia.
The deal launched shortly before 3pm Hong Kong time and the order books closed for Asian investors at 6.30pm. However, US-based investors were given until 9pm to submit their orders.
Hyundai Heavy, which will still own about 2% of Hyundai Motor after this deal, has been keen to raise capital as its shipbuilding business is suffering because of the European debt crisis. Its share price is currently at a two-year low amid expectations of poor second quarter earnings. Adding to the concerns, Bank of Korea last week lowered its GDP growth forecast for this year to 3% from 3.5%.
Hyundai Heavy had been hoping to raise some capital from the initial public offering of oil refiner Hyundai Oilbank in which it owns 91.1%, but that deal was postponed last month, partly due to the volatile markets. The initial talk was that the IPO may raise as much as $2 billion.
Hyundai Motor’s share price has been under pressure in the past couple of months and as of last Thursday was down about 19% from its 2012 high of W268,500 at the end of April. The sell-off has intensified in the past few weeks amid threats of a strike by its labour union.
The union, which is seeking higher wages and reduced working hours, called off talks with the company on June 28 and last Friday staged an eight-hour stoppage both at Hyundai Motor and its affiliate, Kia Motors. However, on Friday Hyundai Motor said the union had agreed to resume discussions on Wednesday this week, prompting hopes that the company will be able to avert any further strikes. The share price jumped 3.4% on Friday on the news and gained another 1.1% yesterday.
This was supposedly enough for Hyundai Industries to decide to go ahead with the sale.
Despite the strike threats and the slowdown in the global economy, analysts remain very positive about Hyundai Motor’s prospects. Of the 43 analysts who cover the company, more than 90% have a “buy” recommendation on the stock and the average target price is W318,000, which suggests 39.5% upside from current levels. This may explain the interest from other investors.
Citi was the sole bookrunner for the block trade.
