Koram Bank has mandated Goldman Sachs and Salomon Smith Barney to lead its forthcoming $250 million GDR. The deal will hope to capitalize on thriving interest in the Korean market from foreign fund managers.
Koram is one of Korea's best managed banks, with a good retail banking strategy, 95% provisioning of bad loans, and low exposure to chaebol. It is also foreign-controlled, with a consortium of the Carlyle Group and JPMorgan Corsair owning 40.5% of the bank, and controlling seven out of the 13 board seats.
It comes as little surprise that Salomon should be mandated for the GDR given it advised the Carlyle consortium on its original investment. Goldman also advised on the deal.
Carlyle's Asian boss, the dynamic Michael Kim should be comfortable with both leads, given he started his career with Goldman and went on to run Asian investment banking at Salomon. Goldman's head of investment banking, Michael Carr was also previously at Salomon where he knew Kim.
The deal will be a welcome equity mandate for Goldman in Korea, where it has lagged not just Solly, but also CSFB, UBS Warburg and Morgan Stanley in the deal stakes.
It looks likely to be a deal that will attract a lot of attention. Already, over half of the bank's free float is held by foreign fund managers, and over the past year the bank's stock has doubled.
Investors will buy into the bank knowing that it is on a rising profit trend, and also that they are likely to be bought out at some point by a foreign acquiror, which will likely pay a takeover premium.
Indeed, Standard Chartered has been quite vocal in expressing its interest in buying in Korea and Koram fits exactly with its strategy.
For Carlyle, it has been a great deal. The consortium bought into the bank at an average cost of W6856 and the stock now trades at nearly W13000.
It is Carlyle's biggest investment in Asia, and the largest equity transaction it has done globally. It a classic case of the more effort you put in, the more you get out. Closing the Koram deal was enormously difficult and looked like it would fall apart on many occasions throughout 2000. The hard slog is recounted in FinanceAsia magazine's December 2000 cover story "Operation Goldfinger".
Carlyle normally invests with a five year time horizon, but given how fast Korea and Koram have turned around, it could exit after only three years. Based on its normal hurdles, this would equate to selling the consortium's 40.5% for at least $1.5 billion, although timing may also depend on a strengthening Korean exchange rate - since a weak yen has led to a weak won and thus equates right now to a poorer dollar return.
