KB Financial rights issue may raise up to $896 million

KB Financial Group, the owner of Korea's Kookmin Bank, yesterday set the first reference price for its upcoming rights issue at W37,250 per share, which means the maximum it can raise from the fully-underwritten issue will be W1.12 trillion ($896 million at today's exchange rate.) The company said earlier this month that it would raise about W1 trillion from the share sale to existing investors.

That size was down from W2 trillion that the company had earlier indicated that it wanted to raise, based on information provided by investment banks that pitched for the mandate. According to media reports, the company has chosen to raise less than initially planned as its capital base has turned out to be stronger than expected.

The reference price is based on a pre-determined formula that takes into account the share price movement in the month leading up to yesterday's pricing date and then applies a 25% discount to whatever base price that yields. Because the share price has been on a steady uptrend since details of the rights issue was announced on July 10 - as of yesterday it had gained more than 13% - and the company is selling a set number of shares, the potential deal size has also increased.

As with all Korean rights issues, a second reference price will be determined on August 21 and the lower of the two will then become the final rights issue price. This means that the underwriters of the deal are protected if the share price should slump in the period between the first and the second price and investors are also guaranteed that the discount applied to the rights issue will be set against a price that is fairly close to the market price just before the subscription opens.

The fact that the discount to the base price would be 25% was announced earlier this month, together with the other details of the deal. The first reference price translates into a 30% discount versus yesterday's closing price of W53,200.

KB Financial, which is still commonly referred to as Kookmin, will offer 30 million new shares, or 8.4% of the company's outstanding share capital, on the basis of 0.07768392 rights share for every one existing share. Investors can choose to buy either ordinary shares or American depositary shares listed in the US.

Of the total deal, 20% will be set aside for company employees, while the remaining 80% will be allocated to institutional investors. The treasury shares that are held by wholly-owned subsidiary Kookmin Bank and which represents 13.9% of the share capital, will not be eligible to participate in the offering.

The subscription period for the ADSs will run from August 7 to August 21, while the subscription for Korea-listed shares will be open on August 26-27. Existing shareholders who do not wish to participate in the offering can sell their nil-paid rights on the Korean stock exchange between August 10 and 17.

The rights offer generated headlines late last month when Kookmin replaced all of the four international banks initially mandated for the issue and brought in Goldman Sachs and Morgan Stanley to arrange the deal instead. According to sources, Bank of America-Merrill Lynch, Citi, Credit Suisse and J.P. Morgan lost their mandates because of a disagreement over fees, with Kookmin claiming that the banks were trying to squeeze more money out of the company than initially agreed. However, the involved parties have different ideas of what was and was not agreed between the issuer and the international investment banks before they were mandated and the background to their dismissal is therefore still unclear.

What is clear though, is that Goldman and Morgan Stanley are now arranging the deal for a 60bp fee, or 0.6% of the capital raised - the same fee that the four mandated banks thought was too low. Domestic banks Samsung Securities and Korea Investment and Securities are also involved in the transaction.

The renounceable offering will be open to all investors who hold KB Financial shares on July 27.

Meanwhile, Singapore-listed Pacific Andes (Holdings) and Golden Agri-Resources said yesterday that their respective rights issues were oversubscribed. This means that they both raised the targeted amount from the issues and that the underwriters didn't have to buy any of the shares.

Pacific Andes, which ships and stores frozen fish and seafood, raised S$228.6 million ($143 million), while Golden Agri, the owner of the world's second largest palm oil plantation, raised S$317 million ($218 million).

Pacific Andes said its offer was 1.33 times covered when including applications for excess shares. Excluding such applications, existing shareholders and investors who bought the nil-paid rights in the market subscribed to 98.19% of the total issue. The company sold 1.39 billion rights shares on a one-for-one basis at S$0.15 apiece - a 50.8% discount to the closing price of S$0.305 on May 21, just before the offer was announced and a 34.2% discount to the theoretical ex-rights price (Terp). Yesterday the stock closed at S$0.24, although it did trade above S$0.40 for parts of the subscription period.

The deal came with 278.2 million warrants on the basis of one warrant for every five rights shares subscribed to. The warrants can be exercised over the next two years and each gives the holders the right to buy one Pacific Andes share at S$0.23. If all the warrants are exercised, the company will get additional gross proceeds of S$64 million.

As reported earlier, its controlling shareholder, Hong Kong-listed Pacific Andes International Holdings (PAIH), took up its full 65% entitlement after first raising the necessary capital in a rights issue of its own that was completed last month.

Golden Agri said it received subscriptions for 1.75 times the number of shares available, including excess rights applications. Excluding such applications the deal was 98% covered. The company sold 1.76 billion new shares at S$0.18 apiece, on the basis of 17 rights shares for every 100 shares owned. The price represented a 60% discount to the closing price on May 26, the last day of trading before the deal was announced, and a 56.2% discount to Terp. Yesterday the share price closed at S$0.375.

This deal too came with warrants, with shareholders receiving two detachable warrants for every five rights shares they subscribed to. The warrants have a three-year maturity and can be exercised at maturity at a price of S$0.54 per share. If all 705 million warrants are exercised, they will bring in a further S$380 million ($261 million).

The company's largest shareholders, Massingham International, which has an 18.8% stake, and Flambo International with a 27.8% stake, both took up their entitlements. The rest of the deal was underwritten by BNP Paribas, Credit Suisse and UBS, which also acted as lead managers.