The block, which was arranged by Morgan Stanley, was priced late on Monday.
Hyundai Engineering's nine creditors, of which KEB is the main one, is looking to sell close to 51% of Hyundai Engineering through a competitive bidding process. People familiar with the sale say the sellers are ready to invite bids - however, they are waiting for annuncement of the preferred bidder for a controlling stake in fellow construction company Daewoo Engineering and Construction Co. That announcement is expected in the next few days.
The sale of a controlling stake in Hyundai Engineering became possible after its major creditors, which owed 66% of the company before the KEB sale, decided in April to release KoreaÆs largest construction company from a five-year debt restructuring programme. Aside from the decision to offload a controlling stake through an M&A deal, this also opened the door for some of the creditors to sell an additional 15% through the capital markets.
KEB, which is itself in the process of being taken over by Kookmin Bank, was the only creditor to take advantage of that possibility, however. Following the placement, KEB will hold 12.6% in the construction company and this will form part of the 51% sell-down.
The pending M&A deal has attracted a lot of interest after the five bids submitted for Daewoo Engineering were said to have been placed at 90-150% premiums to the market price - suggesting a possible deal size of up to $7 billion. Given that the two companies operate in the same sector, these bidders are also likely to be looking at Hyundai Engineering, sources say.
YesterdayÆs block trade of about 5.7 million shares was done at a price of W42,700, which equaled a 5% discount to the latest close and pushed the total amount raised to W241.9 billion ($252 million). The final price marked the mid-point of the initial price range of W41,850 and W43,600.
The order book was about 1.4 times covered with approximately 70% of the demand coming from domestic institutions, according to one source. The modest participation by international investors was partly a reflection of the fact that hedge funds have been all but absent on recent deals in the wake of the sharp sell-off in global equity markets that has now lasted for about six weeks.
On the Hyundai Engineering sale about 90-95% of the total demand was believed to have come from long only funds.
International investors may also not be that familiar with the company, as it is not that widely covered by foreign investment banks and research houses, observers note.
However, the company has seen a sharp turnaround in its financial fortunes since the creditors agreed in March 2001 to bail it out by converting their loans into equity. Its market value has increased more than 15-fold from about $370 million since then.
The net profit rose 89% to a record W323.8 billion ($330 million) last year, which compared with a loss of W2.98 trillion in 2000.
In the first quarter 2006 the bottom line improved 47% from a year earlier to W95 billion ($100 million) as sales rose 15% to W1.06 trillion. The company also said it has secured enough construction orders to last for at least five years.
ôThe company probably has one of the biggest portfolios of overseas contracts, particularly in the Middle East, and operationally it is doing very well,ö one observer says. ôSecondly there is the M&A angle.ö
Still, Hyundai EngineeringÆs share price plunged 7.6% to W41,550 yesterday, closing below even the bottom end of the placement price range. The drop came amid a 2% decline in the Kospi index which was partly fuelled by concern that North Korea is about to conduct a missile test. Hyundai EngineeringÆs shares price gained 7.3% last week.
Separately, a Korean newspaper reported yesterday that a consortium led by logistics and transportation group Kumho Asiana Group would likely be picked as the preferred bidder for Daewoo Engineering after it was believed to have offered to pay $6.9 billion for a 72.1% stake.
Later in the day, however, DaewooÆs main creditor Korea Asset Management Corp said the Public Fund Oversight Committee, which is in charge of the process, hadnÆt reached a decision on which bidder to pick at the end of a meeting yesterday.
The other bidders for Daewoo are Doosan Group, cement producer Eugene Group, real estate developer Prime Industries and second-tier builder Samwhan Corp.
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