Daewoo Shipbuilding to premarket GDR

Taking advantage of a strong share price performance, Kamco and KDB will begin to pre-market a divestment in Daewoo Shipbuilding next week.

Investors canvassed by the leads report that Goldman Sachs and JPMorgan will begin pre-marketing a 15% divestment in Daewoo Shipbuilding next Wednesday. Based on this Wednesday's closing share price of Won10,250, the deal will raise $243.5 million and represent only the third straight equity offering from Asia this year.

Timing is considered opportune, however, because the company has just been included in the MSCI index for the first time and ranks as one of the few strong outperformers on the Kospi so far this year.

The stock is currently up 46.43% on the year, versus a roughly 5% decline in the overall index, but analysts still feel it has upside because valuations have long been held back by the overhang of the government's stake.

Formal roadshows are scheduled to kick off the week beginning May 19 and pricing completed towards the beginning of the week beginning June 2. Alongside the leads, Daewoo and KDB Securities are co-leads, with Citigroup, Credit Suisse First Boston and ING as co-managers.

Under the terms of the divestment, KDB will sell 10% and Kamco 5%. The Korean policy bank presently holds 42.1% of the company's outstanding equity and will remain its majority shareholder, while Kamco holds 27.6%. A further 23% is in freefloat, down from 31.1% last year after the company entered into a stock buy-back programme to support its share price. Analysts estimate that foreign investors hold about 10% of the company's equity base.

News that the GDR is to proceed may weigh down the company's share price over the short-term, but analysts believe that it will provide a better foundation for a fair valuation over the longer term. At the beginning of April, for example, CSFB published a research report which stated that, "Going forward we believe that the stock will lead the sector with outstanding profitability, attractive valuations and transparent financials. We maintain our outperform rating on the stock with a target price of Won14,400 (based on a 10% discount to DCF)."

In 1999 the Korean shipbuilding sector overtook Japan as the world's largest and over the past couple of years, Daewoo Shipbuilding has become the analyst's favourite overtaking listed comparables Hyundai Heavy and Samsung Heavy.

The company is perceived to be free from cross shareholding issues and has been able to maintain a clean balance sheet and strong growth trajectory. The world's second largest shipbuilder, Daewoo Shipbuilding is also said to be benefiting from an EU ban on single-hull tankers. Three of five recent orders worth $350 million came from Europe and the company has now secured 58% of its order target for 2003.

It is currently trading on a p/e multiple of about 6.8 times 2003 earnings and 5 times EV/EBITDA, down from a p/e of 10.4 times this time last year, but up from 6 times towards the tail end of last year. Net debt to equity stands at 31%.

The group has a current market capitalization of $1.6 billion and 192.4 million shares outstanding. It does not pay a dividend.

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