CJ CGV premieres placement

Citigroup''s venture capital arm divests stake.

Korea's largest multiplex cinema chain CJ CGV raised $139.3 million last Thursday (April 7) in a deal which saw 23.8% of the company changing hands.

The 4.9 million shares in CJ CGV were priced at KRW 28,700, which represented a 5.9% discount to the stock's close. As a resut of the Citigroup-led deal, Asia Cinema Holdings (ACH) will see its stake drop from 31.83% to 8%. The stake holding by parent CJ Entertainment remains unchanged at 36.73%.

The deal comes at a time when the stock price has hit a fresh 52-week low. However, some analysts still believe the valuation appears attractive compared with other Korean consumer oriented companies. CJ CGV is currently trading at around 12.9 times 2005 earnings and 10.6 times 2006, compared to an average of 13.6 times in 2005 and 11.5 times in 2006 for domestic comparables.

Given the large stake involved, the deal unsurprisingly equated to a fairly heavy 45 days trading volume and will expand the freefloat by 24%. It will also massively expand foreign ownership, which was fairly minimal pre sale.

The placement is said to be have 1.5 times covered at an enlarged deal size with the participation of around 60 investors. Of the block's participants, about 65% were based in the Asia region, while the remaining 35% resided in other regions around the globe.

CJ CGV has the leading market share of the Korea admissions market. At 22%, its market share is more that of the second and third players combined. Analysts also argue that the future growth prospects are bright since the Korean market remains underpenetrated.

There are currently 42,745 people per screen in Korea compared to 8,330 in the US. Viewings per person per year also stand at 2.5 times in Korea compared to 5.1 times in the US.

The company plans to expand its footprint in Korea with 50 new sites scheduled to open by 2007. It also hopes to maintain an operating margin in the 22% area.

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