KDIC sells $1.03 billion of Woori stock at 0% discount

The Korean government has sold another 9% of Woori Finance Holdings, through a share placement that attracted a lot of attention among international investors. The sale was increased from a 7% stake initially and priced at a 0% discount for a total deal size of W1.16 trillion ($1.03 billion). 

This was the second Korean placement in a month to price flat to the market, which is testament to the strong desire among international investors to increase their exposure to the region and to do so via large liquidity events in key companies -- the Woori sell-down equalled about 20 trading days of volume -- rather than through trades in the market that risk moving the share price. Woori Finance is the largest financial holding company in Korea and the owner of Woori Bank.

In mid-March, a group of creditors to Hynix Semiconductor raised a combined $817 million by cashing in part of their remaining stake at a price that was equal to the latest market price, even though the share price had gained in eight of the previous 10 sessions.

Woori did not have the same stellar performance leading up to the sale -- it has fallen in three of the past four sessions and lost a combined 6.4% this week -- which would have facilitated the tight pricing. Like Hynix, the sale was well flagged, meaning investors would also have had time to adjust their existing positions in the stock leading up to the launch. Indeed, the Korean press was reporting that a sale of this size was going to take place on Wednesday.

Korea Deposit Insurance Corporation (KDIC), which prior to this sale held a 66% stake in Woori on behalf of the government, initially offered 56.42 million shares which was later increased to 72.54 million. The possibility that the deal would be upsized by as much as 2% of the company was flagged on the term sheet.

The shares were offered at a price between W15,400 and yesterday's closing price of W16,000, with the low end of the range representing a 3.75% discount versus the close.

The deal was launched at about 2.30pm Hong Kong time and saw strong demand from international investors through the afternoon. In the early evening, the deal was covered at the low end of the range, even though Korean investors typically don't come in until just before the book is due to close. At that point, the demand was quite price sensitive, however, which was perhaps not too surprising given that Asian markets were generally weak -- Korea bucked the trend with a 0.4% gain -- and Europe continued in that same mode.

By the time the order books closed at around 9pm, that had changed, allowing the bookrunners both to go for a 0% discount and to upsize in full. According to a source, the deal was more than three times covered and contained a lot of lumpy orders. At least 60% of the demand came from international investors, which was a turnaround from KDIC's previous sell-down in Woori in November last year when two-thirds of the demand was said to have come from domestic accounts. A banker not working on the deal said the fact that Korea is one of the best performing markets among the major markets in Asia ex-Japan this year may have played a role. The Kospi index is up 3% year-to-date, outperforming Hong Kong, India, Shanghai, Singapore and Taiwan.

Given the non-existent discount, it is also not a huge surprise that the order book had a long-only bias and included existing investors, although there was some participation by hedge funds as well. While a final breakdown wasn't available, Asia was said to have accounted for about 60%-70% of the demand with the rest split on Europe and the US.

Credit Suisse, Daewoo, Samsung Securities and UBS acted as joint bookrunners.

KDIC will still hold 57% after this transaction and has agreed to a 90-day lockup. The company has pretty much said that it will come up with a road map for how to dispose of its remaining stake, which sources said suggests that it is probably considering a trade sale of at least a majority stake. It also suggests that any further block trades in the capital markets will be well flagged. This should help prevent an overhang on the stock.

The share price has doubled in the past 12 months, and reached a new 12-month high of W17,100 on Friday last week. It is up 15.5% since the beginning of this year.

KDIC had previously said that it intends to sell up to 16% of Woori in the first half of 2010, and early this year, Jin Dong-su, chairman of the Financial Services Commission, indicated that a full privatisation will happen this year. He also explicitly said that a merger between Woori and another financial company is possible, because it would raise the value of the firm.

Kookmin was initially touted as the most likely merger candidate, but more recently Hana Bank has emerged as the favourite to link up with Woori, and the Korean press has reported that executives at Woori and Hana are in the process of preparing a structure for a merger. Another possibility is a three-way merger between Woori, Kookmin and Hana -- or even a tie-up with Korea Development Bank (KDB).

KDIC sold a 7% stake in Woori in November at a fixed price of W15,350, which represented a discount of 4.36% to the latest close. That deal was upsized by a larger-than-flagged 74.4%, resulting in a total deal size of $745 million.

The government agency also sold shares in Woori in June 2007 when the share price was hovering around W2,300. At that time it offloaded a 5% stake, fetching $990 million.