A 10% block of Hyundai Wia Corp shares changed hands last night as two of the company’s shareholders took advantage of improving sentiment in the equity capital markets to reduce their controlling stake.
Hyundai Motor Corp and its 33.7%-owned subsidiary Kia Motors raised W338.2 billion ($300 million) by trimming their combined stake in the automotive parts maker to 41% from 51%. The sellers, which reduced their individual holdings proportionally, provided no real reason for the move, but one source noted that Korean conglomerates are starting to realise that having a lot of their capital locked-up in group companies (often through cross-shareholdings) is not an efficient use of their capital. In many cases, they could easily reduce their stakes without giving up any of their control. Indeed, Hyundai Motors’ controlling stake in Hyundai Wia won’t be affected by the sale.
The two companies jointly offered 2.6 million shares at a price between W131,600 and W135,000, which represented a discount of 2.5% to 5% versus yesterday’s close of W138,500. It was priced at the bottom of the range for the maximum 5% discount. Goldman Sachs was the sole bookrunnner.
The deal was well covered — about two times, according to a source — but the key accounts were price sensitive and it seems a pricing above the low end was never really an option. The block was also relatively chunky at close to 17 days of trading volume, based on the daily average turnover during the past three months.
The offering was anchored by a number of investors at launch (at a 5% discount) and was covered within the first hour. However, the order books were kept open for three hours for Asian investors and for an extra hour for US-based accounts.
It attracted a good mix of international and domestic investors, with a slight overweight towards international accounts. The demand came predominantly from Asia, complemented by a handful of orders from the US and Europe. All in all, about 75 investors came into the transaction — a decent number for a deal this size. The source noted that the number of investors participating in equity placements is increasing, which is giving the market a bit more depth. A key reason is that people are starting to make money from these deals again.
Yes Bank’s share price has risen 2.4% versus the pre-deal close since Khazanah Nasional sold a $106 million block in the Indian lender last Friday and is currently trading 3.6% above the placement price. And in Singapore, Ezra Holdings, a provider of offshore and subsea services to the oil and gas industry, is currently 1.4% above the price at which it raised $96 million of fresh equity capital on March 9.
Hyundai Wia has a good following among domestic Korean funds, and investors also like the autoparts sector now that the global economy is showing signs of recovering. Korea’s automotive industry is also expected to be one of the key beneficiaries of the free trade agreement with the US that took effect yesterday as tariffs on car parts will be lifted immediately. Korea’s auto exports to the European Union surged 42.8% last year, partly due to a bilateral free trade agreement that took effect in July, local media quoted the ministry of knowledge economy as saying earlier this week. In January, passenger car sales in the EU dropped 6.6% from a year earlier, but Korean auto exports to the region increased by 79.7%.
Hyundai Wia’s share price has fallen 2.8% so far this year, but is up 96% in the past year. Eleven of the 16 analysts who cover the stock, according to Bloomberg, have a “buy” rating on it. Only one has a “sell”. Aside from autoparts, the company also makes machine tools, robots, industrial machinery, defence products and parts for aircraft.