CJ HelloVision seeks $323 million ahead of Korea listing

The cable-TV operator is the first Korean company to target international investors with an IPO this year.

South Korea’s largest provider of cable-TV services, CJ HelloVision, has kicked off the institutional roadshow for an initial public offering of between W264.5 billion and W359 billion ($238 million to $323 million).

If successful, this will be the largest IPO in Korea so far this year and also the first one that is explicitly marketed to international investors. The largest new listing year-to-date is the $179 million IPO for Huvis Corp, which was arranged by Daewoo Securities, Dealogic data show. The total value of IPOs stands at just $893 million, which is well below the $3.4 billion raised in 2011.

Sources say CJ HelloVision could be the right company to re-open the market as it is the market leader in a growing sector. However, it is somewhat unclear if any of the companies in the visible pipeline will actually attempt a listing this year.

Investors also like pay-TV operators because of their exposure to consumer spending and the other IPOs in the sector this year, by MNC Skyvision in Indonesia and Astro Malaysia, both saw strong demand.

“The hope is that this IPO will highlight the potential of the cable-TV industry in Korea, just like Astro did in Malaysia,” one source said.

In addition to its cable-TV business, CJ HelloVision provides high-speed internet and internet telephone services, which also makes it an alternative way to play the Korean telecom sector.

One source noted that there have been pretty good interest from investors so far and they are at least keen to meet with the management during the roadshow, which launched on Tuesday.

South Korea doesn’t allow the signing up of cornerstones before the launch of an IPO, but one source noted that the price range has been set in accordance with the feedback during the pre-marketing, which should ensure that the early interest is converted into actual orders.

The deal accounts for 24.4% of the share capital, which translates into approximately 18.89 million shares. All the shares are secondary, although 47% of them are treasury shares that will be sold by CJ HelloVision itself. This will ensure that almost half of the proceeds will go to the company.

The rest of the shares are sold by three existing shareholders — AA Merchant Banking, Formosa Cable Investments, and Eugene Investment and Securities. They will each still own between 1.5% and 4.9% of the company at the time of listing and will be locked up for 90-days. The same lockup applies to the company.

Sixty percent of the deal will be offered to institutional investors, while 20% will be targeted to Korean retail investors and another 20% to employees under the Employee Share Ownership Plan (Esop). There is no greenshoe.

The shares are offered at a price between W14,000 and W19,000, which translates into a 2013 price-to-earnings (P/E) multiple ranging from 9.9 to 13.4 times. As a P/E valuation may be distorted by varying levels of capex depreciation between different companies, investors also tend to look at pay-TV operators on an enterprise value-to Ebitda basis and on that basis, CJ HelloVision is offered in a range between 4.3 and 5.3 times.

One source noted that both measures pitch the company towards the low end of where its closest comparables are trading. One of its key listed comps in Korea is KT SkyLife, which provides satellite-based digital pay-TV services. Its share price has had a strong run since mid-May, gaining 83%, and the company is currently valued at a 2013 P/E multiple of 16.3 and at an EV/Ebitda multiple of 8.5.

CJ HelloVision had about 3.2 million cable-TV subscribers at the end of June this year and provided high-speed internet access and internet telephone services to 690,000 and 580,000 subscribers respectively. It currently provides video services in 18 out of a total of 77 service areas in Korea, according to a preliminary listing prospectus.

The company has reached its market leading position partly through a successful string of acquisitions, complemented by organic growth that is driven by the provision of innovative services. Among other things, CJ HelloVision was the first Korean company to offer digital cable-TV services in 2005 and, as of the end of June, 41.7% of its cable-TV customers subscribed to its digital services. This compares with an industry average of 31.4%, according to data provided by the Korea Cable Television & Telecommunications Association (KCTA).

The further digitalisation of the Korean TV market is viewed as a key growth driver, together with the company’s plan to grow its subscriber base through further acquisitions. In fact, one source noted that it is trying to become an industry consolidator.

The company was founded in 1995 as a subsidiary of KT Corp under the name of Korea Telecom Cable Television, but was acquired by the CJ Group (it bought 93.3%) in 1999. It changed its name to CJ HelloVision in 2008.

According to CJ HelloVision’s prospectus, the CJ Group is the 20th largest business group in Korea by total assets. Its main businesses are food, media, retail and biotechnology. The group owns its controlling stake in CJ HelloVision through its CJ O Shopping unit and as a result of that link, CJ HelloVision broadcasts home shopping networks and ads on its cable-TV channels.

The institutional order books are open until October 25 and the final price is expected to be set the following day. The trading debut is scheduled for November 9.

Daewoo Securities, Hi Investment & Securities and J.P. Morgan are joint global coordinators and bookrunners for the offering.

¬ Haymarket Media Limited. All rights reserved.
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