It was only the second time a Korean company has issued unlisted GDRs and the first time such a sale was done as a fully-marketed deal with a prospectus and full roadshow. The previous time this structure was used was for an overnight block trade of Kookmin Bank shares.
Both these deals were arranged by JPMorgan, which has made a bit of a name for itself in terms of coming up with innovative deal structures. A banker at the US firm said he expects similar types of unlisted deals could become ôthe next wave of offers from Korean issuersö as they present a way for companies both to circumvent regulatory hurdles and to get their international capital raising done quicker and cheaper than through an overseas listing.
For investors the new structure will make little difference because typically buyers of Korean-linked ADRs or GDRs immediately convert them back into common shares listed in Seoul û resulting in very low liquidity in the overseas-listed securities.
By deciding not to list its GDRs and therefore forcing investors to convert into common shares if they want to trade them in the market, Woongjin Coway has simply formalised a practice that is already commonly used, one observer says.
The decision to issue GDRs in the first place was prompted by the fact that the company wanted to sell treasury shares, which in Korea are allowed to be sold only within two ticks of the market price. In percentage terms this would have represented a discount or premium of no more than approximately 0.05%, while there are no such limits if the treasury shares are sold in the form of GDRs.
The total offer comprised 5.1 million common shares, split into 1.48 million secondary shares offered for sale by the companyÆs chairman, vice chairman and chief executive, and 7.3 million GDRs, which each account for 0.5 common share.
Together the shares accounted for about 6.9% of the outstanding share capital.
The GDRs were priced at $14.51 apiece, which translated into W27,500 per common share, or a 2.4% premium to ThursdayÆs closing price of W26,850. There was no indicative price range and investors were offered the shares and GDRs on a ôtake it or leave it basisö during the week the book was open.
Even so, the issue was said to have been well oversubscribed, which can partly be viewed as a testament to the strong investor interest for consumption plays. According to a person familiar with the offer, the order book was fully covered by Asian investors alone. In the end, about 40-50% of the offer did end up in Asia, with the remainder split between Europe and the US.
Woongjin ConwayÆs share price did come off 7.7% on the final two days of the offer period as some market players tried to get the pricing down, but the company and the bookrunners priced the offer at a premium to the latest close û the highest ever for a South Korean follow-on issue.
Investors may not like to buy stocks at a premium, but in fact the share price did go up 4.3% on Friday following the pricing of the GDRs even though the Korean market fell 2.3% - which shows, at least, that they didnÆt regard it as overpriced.
The share price is up 109% over the past 12 months, which has pushed the company market capitalisation just above $2 billion .
The company manufactures appliances to improve the home environment, including water purifiers, air cleaners, water softeners and bidets, which are then sold or rented out. It is part of the Woongjin Group, which also includes publishing firm, Woongjin ThinkBig and healthy beverage producer, Woongjin Foods.
The rental service concept was launched after the Asian financial crisis in 1998 when Korean customers were reluctant to purchase expensive products. Through the new business strategy, however, Woongjin Coway managed to get Koreans to open their wallets again. The model is complemented by a door-to-door service, which aside from product promotion includes monthly visits to customers to exchange filters and provide other types of maintenance.
The company is liked by investors mainly because of its dominant position in the rental market, its strong growth potential as its business model is becoming both widely accepted and well established, and its strong cashflows.
According to its 2006 business plan, the company aims to achieve a 19% increase in sales to W1.2 trillion ($1.12 billion) and a 62% increase in net income to W99 billion ($110 million).
Part of the net proceeds that the company will get from selling the treasury shares will be used to repay debt, while the rest will go towards other corporate purposes. A key reason for issuing the GDRs, however, was to get wider recognition for its brand as it seeks to further expand its research and development and marketing programmes.
The company has said that its most important task this year is to strengthen the core competitiveness of its coordination and rental system. It will also diversify its current cosmetics business in China to include sales of environment appliances such as water purifiers, air cleaners and bidets and has decided to invest W5.3 billion ($5.9 million) in the China corporation. It is also surveying the market in the US and more than 10 other countries to widen its export range.
JPMorgan believes other companies too will be keen to use unlisted GDRs as many companies want to raise capital in the international markets, but donÆt want to go through the regulatory issues and deal with the additional disclosure requirements.
It also saves time, as shown by Woongjin CowayÆs issue which took only about six weeks to complete from start to finish despite the fact that it was a first time issuer in the international markets.
¬ Haymarket Media Limited. All rights reserved.
