Kookmin parent raises $296 million from share sale

KB Financial Group, the new holding company of Korea’s largest lender, Kookmin Bank, raised W400 billion ($296 million) last Thursday from the sale of treasury shares through an accelerated bookbuild – the first share placement of size by an Asian company in almost three months.

KBFG held 73.6 million treasury shares as a result of the group restructuring before its establishment as the group holding company on September 29 and had been required by the government to sell about 18.5 million of those (5% of the company) by the end of March 2009. Last week’s sale of 11.85 million shares represented a 3.2% stake and sources say KBFG is looking to sell the remainder to a strategic buyer – potentially a foreign bank.

The decision to come to market this close to year end – especially after such a long period of no placement activity – did seem a little surprising, but KBFG was obviously trying to take advantage of the 60% bounce in its share price since November 24 (although the stock was still down 30% from the post-restructuring high of W53,100 in mid-October). It may also have been trying to get ahead of the curve as expectations are that a lot of Asian banks will need to raise capital in the early part of next year.

The tone of the overall market was also slightly more positive during the first four days of last week with a 12.3% gain in the Kospi index and similar advances in Hong Kong and Tokyo. Indeed, bankers did sound out a few more block trades with investors during the week, but nothing else materialised.

Of course, all that positive sentiment came crashing back down to earth on Friday after US lawmakers rejected the bailout plan for the big three US carmakers, showing, once again, the importance of grabbing a window of opportunity as it emerges. Sellers who decide to hold out for yet higher prices may well find themselves missing out as the window slams shut again.

The KBFG block accounted for no more than three days worth of trading volume, which would have improved the chances of a successful transaction, but this was by no means an easy sell. For one, the 5%-9% discount on offer wasn’t even enough to cover the 10.5% gain over the past two trading sessions. Sources say the deal was fully placed, although investors did receive very close to what they asked for, indicating that the total order amount wasn’t exactly excessive. The price was fixed at W33,760 per share – a discount of 8% versus the previous day’s close – which suggests J.P. Morgan, as the sole bookrunner, did manage to obtain some slight price tension in the book.

J.P. Morgan was said to have clinched the mandate after agreeing to underwrite the deal at a 9% discount – a level described by other market participants as “aggressive”.

One source said the deal attracted about 50 investors, including both long-only accounts and hedge funds. Domestic investors are believed to have taken about 20%-30% of the placement, which is lower than normal for a Korean deal, while the rest was divided between Asian, European and US investors.

The buyers found themselves sitting on an immediate loss, however, as KBFG’s share price tumbled 13.4% on Friday, leaving it 5.8% below the placement price. But the decline didn’t come in isolation. Other Korean banks also fell sharply as investors tried to gauge what a lack of financial aid for the US carmakers would mean for the global economy. Shinhan Financial Group fell 14.9%, Korea Exchange Bank was down 14.4% and Hana Financial Group lost 13.2%.

Friday’s sell-off was widespread across Asian markets and showed that it doesn’t take much to derail buying sentiment in the current environment. The Kospi index fell 4.4%, Hong Kong’s Hang Seng Index lost 5.5% and the Nikkei 225 was off 5.6%. However, bankers say there are still investors out there willing to participate in placements at the right price.

“There are a lot of long-only investors who still have excessive cash levels and when the markets go up they need to buy not to underperform. They are not charging in full steam, but underlying investments are still ongoing,” one banker says.