Samsung Life completes largest Korean IPO at $4.4 billion

Samsung Life, Korea's largest life insurance company, on Friday priced its initial public offering in the upper quarter of the indicated price range for a total deal size of W4.89 trillion ($4.4 billion), confirming its status as the largest IPO in Korea ever, ahead of Lotte Shopping's W3.43 billion ($3.54 billion) offering in 2006.

It is also the largest insurance sector listing this year after Japan's Dai Ichi Life, which raised $11 billion in late March, shortly before Samsung announced the details of its deal.

The Samsung IPO, which was made up entirely of secondary shares, saw strong response from international investors in particular and sources said the 40% international tranche was 10 times covered and received more than 250 orders, including some very big ones from long-only funds. Domestic institutions put in orders worth about $10 billion.

This allowed the price to be fixed at W110,000 per share, well above the mid-point which some media reported as the likely pricing point early Friday. The shares were offered in a range between W90,000 and W115,000.

The final price values the company at 1.32 times its embedded value, based on December 2009 numbers. The valuation became increasingly attractive during the marketing period as the country's number two life insurer Korea Life Insurance, gained strongly. Korea Life priced its IPO in early March 8.9% below the initial guidance range at W8,200 per share for a total deal size of $1.56 billion, but in the past couple of weeks the share price has rallied 14% to a record high close of W9,420 on Friday. At that price it is valued at 1.18 times its end-2009 embedded value , making the low end of Samsung's price range -- at 1.1 times embedded value -- look cheap.

Even without the gains in Korea Life's share price one can argue that Samsung set the price range to draw people into the deal, however. Before the details of the deal were announced at the end of March, there was talk among investors and analysts that Samsung may come to market at as much as two times embedded value.

Even at the top end of the range -- at 1.4 times embedded value -- the valuation was significantly below another key benchmark set in March when Prudential agreed to buy AIA Group, the Asian life insurance business wholly owned by American International Group (AIG), at close to 1.7 times AIA's embedded value as of November 30, 2009. The Prudential acquisition, valued at $35.5 billion, was also positive for Samsung Life in the sense that it led to the scrapping of AIA's planned IPO in Hong Kong, which was expected to top $10 billion. With that deal no longer happening, many investors who had planned to participate in the AIA IPO all of a sudden found themselves looking for exposure to the Asian insurance market elsewhere.

The initial momentum in the Samsung book was created by hedge funds and the international tranche was two times covered at the end of the first day, but thanks to a convincing performance by the management during the roadshow and because of the shrinking premium versus Korea Life, there was another boost in orders towards the end of the bookbuilding, which ended in San Francisco last Thursday. As always, there was also a bit of a surge in the order flow as investors realised that the demand was far greater than the supply.

"I think people were shocked by Korea Life's share price performance, especially since it priced [its IPO] below the range," said one source, noting that the latter certainly seemed to indicate that there wouldn't be too much demand in the secondary market either.

That said, the same source noted that the overall IPO market in the US has lost some of its shine over the past week. Of the deals that priced in the US on Thursday last week, four priced at the bottom of the range and two below the range, which compares with two weeks earlier when the vast majority of IPOs priced at or above the top end of the range. This would imply that risk appetite has taken a bit of a beating.  

But Samsung Life didn't seem affected at all by that. Because of the strong interest, many investors also got quite small allocations, which could lead to additional buying when the stock starts trading on May 12.

The deal comprised 22.2% of the company, or approximately 44.44 million shares. The sellers included Shinsegae Corp and CJ Cheiljedang Corp, which each sold 5 million shares, leaving them with 11.1% and 2.3% respectively after the IPO. Various other existing shareholders made up the rest. In addition to the 40% international tranche, 20% went to domestic institutions, 20% to Korean retail investors and 20% to the company's employee stock ownership association.

The fact that the deal was priced on Friday last week, as opposed to Tuesday this week as was the original intention, is interesting and may open up for other Korean deals too to be priced more in line with international practices. According to the initial plan, the management would have flown back from the US on Friday and then held pricing meetings over the weekend and confirmed the retail orders on Monday before being able to allocate on Tuesday. Initially the price would also have had to be confirmed with the selling shareholders before it could be finalised.

Instead, the pricing call was held with the management still in the US and the bookrunners got the creditors to agree in advance that any price within the price range would be acceptable. The retail and stock ownership association orders still need to be finalised today, but since neither of these are driving the price, that will have no impact on the overall deal. According to a source, the latter tranche was taken up in full by Friday last week and the retail offering was also very strong.

By confirming and announcing the price already on Friday, Samsung was able to avoid any potential price risk if global equity markets were to fall on Friday or Monday, thus allowing it to take full advantage of the strong demand.

Goldman Sachs and Korea Investment & Securities acted as joint global coordinators and were joined as bookrunners by Bank of America Merrill Lynch, Morgan Stanley and Shinhan Investment Corp.