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It took just over a week of more upbeat markets, but finally a couple of blocks emerged in Asia — the first in almost six weeks. Both trades were in Korean companies and raised a combined $530 million.
The CJ group pocketed W342 billion ($300 million) by selling down its stake in Samsung Life through two separate entities and a Korean charity foundation raised (W264 billion) $230 million from a fixed-price sale of shares in logistics and transportation company Hyundai Glovis.
The fact that both target companies were Korean was probably just a coincidence and bankers say they expect blocks in other countries too if markets continue to recover, or at least stabilise. That these two deals were the ones to reopen the market probably had more to do with the fact that they were ready to go — at a time when sentiment was reckoned to be strong enough to absorb a transaction.
The benchmark Kospi index had risen 11.9% during the past seven sessions, including a 1.6% gain yesterday, but perhaps even more important was the fact that the Vix index, which measures the volatility in the US S&P500 index moved below 30 on Friday for the first time since early August. This, bankers said, was a good signal for investors to increase their risk exposure again. Long-only funds were also net buyers of Asian stocks last week, which would have made banks more confident in the overall buying interest for blocks.
Samsung Life
CJ Cheiljedang and CJ O Shopping offered a combined 4 million Samsung Life shares with an option to upsize the transaction to 6.4 million shares. The price was indicated at between W85,500 and W87,300, which translated into a discount of 3% to 5% versus yesterday’s closing price of W90,000.
According to sources, demand was solid and the deal was covered in two hours with additional orders coming in as the offering was kept open for another hour. However, being the first deal in such a long time, the bookrunners decided not to be too aggressive and fixed the price at the bottom of the range for maximum 5% discount. The upsize option wasn’t exercised. To be able to do so would have required the order books to be kept open for longer, which would have increased the price risk for investors, and that is something neither investors nor bankers are particularly keen to do at the moment. And given the fall in European and US markets later in the global session, that appears to have been the right call.
At the final size the deal accounted for about 2% of Samsung Life’s share capital and eight to nine days worth of trading volume. While this made it relatively small in size, Morgan Stanley and Nomura, which acted as joint bookrunners, had good visibility on about half the final deal size before launch. This helped create good momentum among other investors as well.
The sources said there was less demand from domestic Korean accounts than usual for a block trade, and a significant majority of the deal was placed outside Korea. This may have been partly due to the fact there ended up being two deals in the market on the same day. But Korean institutions have also been buying shares at low prices in the market during the past couple of weeks, which may have reduced their immediate appetite. Still, there was enough demand from international investors to make up for the difference.
Given that the deal opened just after 3pm Hong Kong time and closed at about 6pm, most of the international orders came from Asia. The buyers were said to include a mix of long-only accounts and hedge funds. Close to 50 investors participated in the deal.
A block in Samsung Life had been expected for a while. CJ Co, which owned close to 6.4 million shares in the company was required to divest its stake by September 3 this year under Korean regulations, but since it was believed not to be happy with the market price at that time, it chose to transfer all its share to two other group entities that were not subject to the same requirements. CJ Cheiljedang, which already owned some Samsung Life shares, ended up with a 4.5% stake in the Korean life insurer, while CJ O Shopping received a 1% stake in the company. Following yesterday’s sale, their holdings will drop to 3% and 0.5% respectively. Their remaining shares will be locked up for 60 days.
Samsung Life’s share price hasn’t made much progress since early September and it did fall 1.1% yesterday. But at least it has been reasonably stable around the W90,000 mark after rebounding from its 2011 low of W84,000 on August 29. As of yesterday’s close the stock was down 18.1% versus its IPO price of W110,000. The company raised $4.4 billion in Korea’s largest ever IPO in April 2010.
It has traded above the IPO price only in brief periods since then and the highest close is only W115,500. However, analysts have long believed that the stock is undervalued, and the removal of the CJ overhang could potentially be a catalyst for additional gains.
Hyundai Glovis
The second trade of the day launched later than Samsung Life, but according to sources started marketing towards domestic accounts before it was launched to a wider international audience after 6pm. Here too, the bookrunners — HMC Securities and UBS — were said to have had good pre-launch indications about demand, with around one-third of the deal basically covered before the books opened. In the current volatile market such an approach is deemed both prudent and necessary in order to make investors comfortable about committing money and the same tactics have also been used on most of the successful IPOs in the past month.
The seller, Haevichi Social Contribution Culture Foundation, offered 1.32 million shares at a fixed price of W200,000, which translated into a 3.8% discount versus yesterday’s closing price of W208,000. While the discount was narrower than for Samsung Life, it is worth noting that Hyundai Glovis’s share price rallied 7.2% yesterday to its highest close so far this year. It has added 23.8% since October 7.
Yesterday’s gains were partly attributed to the fact that Hyundai Glovis announced yesterday that it had signed a memorandum of understanding with Boeing, but the fact that the bulk of the gains came in the final trading hour does suggest that it may have been related to the pending placement — a phenomenon not that uncommon in Korea. Hyundai Glovis provides ocean, air and inland transportation, as well as logistics consulting, storage, packaging and supply chain management services.
This deal too was quite small in relative terms, accounting for about 3.5% of the share capital and some 12 days worth of trading volume.
Based on estimates from sources, the domestic demand appears to have been stronger on this transaction. The international buyers were again described as a mixture of long-only and hedge funds. Overall, less than 50 investors came into the deal.
Haevichi received most of its shares in Hyundai Glovis in late August when Chung Mong-koo, the chairman of Hyundai Motor and a major shareholder in Hyundai Glovis, transferred part of his remaining shares in the company to the foundation. It held less than 5% of the company before last night’s deal and is left with a small residual position that is locked up for 90 days.
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The share transfer was part of a pledge by Chung earlier this year to divest his entire 18% stake in Hyundai Glovis to end a three-year legal battle. Chung set up Heavichi when he was on trial for negligence of duty and embezzlement and in 2006 promised to donate W840 billion won ($737 million at today’s exchange rate), according to local media reports. He has earlier contributed W150 billion to the foundation.
The latest contribution is to be used to support students from low-income families, children of veterans and patriots and scientific prodigies in high-tech fields. Given its need to convert the shares into cash, it was no great surprise that the foundation took the opportunity to sell following the recent gains in Hyundai Glovis share price.
While well supported, the two blocks may have been lucky to launch when they did as European and US markets both fell overnight after the German finance minister Wolfgang Schaeuble said he doesn’t expect there will be a definite solution to the European debt crisis at the European summit this coming weekend. A disappointing earnings report from Wells Fargo also contributed to the souring mood. The Dow Jones index tumbled 2.1% in fairly light volumes, the Nasdaq Composite dropped 2% and the Vix index jumped 18.2% to return above 30 (it closed at 33.4).
