Doosan Bobcat pulls blockbuster IPO

Korea’s largest IPO of the year has been put on hold after investors balked at the valuation and worried about the US election.

Korean bankers are set to end the year with disappointment after construction machinery manufacturer Doosan Bobcat pulled its W2.45 trillion ($2.2 billion) initial public offering on Monday.

Doosan Bobcat decided to postpone the share sale because the size of the offering was too big for some market participants, the company said in a statement on Monday.

According to the offering terms, the company had planned to sell 49 million existing shares, equivalent to 48.9% of its share capital. In other words, nearly half of the company was intended to be sold through the listing, an amount that proved too big for investors to stomach.

There were already signs of insufficient demand in the final few days of institutional bookbuilding, when prospective investors were told the lower end of the W41,000 to W50,000 price range was cut to W35,000 per share.

That was a bad signal to the market and suggested the company had made an unsuccessful attempt to rescue the transaction through cutting its market valuation.

At W35,000 per share,  Doosan Bobcat would have been valued at 8.4 times EV-to-Ebitda, which was 14.6% lower than its initial valuation multiple of 9.8 times to 11.3 times.

Doosan Bobcat said it will revise the transaction in November or January next year with a new structure, which is likely to include fewer shares and a further reduction in the offer price.

One roadblock for bankers building demand for the deal was the impending US election. One fund manager told FinanceAsia that the market wanted more clarity about the election result before investing in Doosan Bobcat.

This is because the business of Doosan Bobcat — the largest compact equipment manufacturer by sales in North America — is strongly tied to the housing markets in North America, where it generated about 70% of its revenue last year.

There have been increasing worries over a potential Donald Trump administration and its knock-on impact on the US property market. The outspoken presidential candidate, who has repeatedly criticised the Federal Reserve for keeping interest rates low, is likely to try to expedite the rate hike cycle. This will put pressure on home prices and discourage home building, and in turn reduce demand for home construction equipment, according to sector analysts.

Trump has said he felt “excited” above the housing market collapse eight years ago because he could buy at low and make some money.

Huge blow

In any case, the suspension of the trade is yet another devastating blow for Korean bankers.

At the beginning of the year, it was widely tipped that Korea will have a record-breaking year in terms of IPO volumes as a number of billion-dollar transactions were ready to hit the market.

But the market suffered the first blow in June when Lotte Group pulled the IPO of its duty-free chain and hotel business, ripping $4.8 billion off Korea’s potential deal volume for the year. The transaction, which would have been the country’s biggest ever IPO, was canceled as the family-run conglomerate came under investigation for alleged bribery on its duty-free business.

On the M&A front, Korea has also missed out on what could have been the biggest deal of the year after the Fair Trade Commission gave a thumbs down to the proposed merger between SK Telecom and CJ Hellovision in July.

Bankers will be expecting the same would not happen to Samsung Biologics, which is currently pre-marketing a $2 billion IPO to prospective investors. It is set to begin a formal roadshow next week.

Shares of Doosan Infracore and Doosan Engine, the controlling shareholders of Doosan Bobcat with a combined 78.4% stake, plunged 7.2% and 10.6% respectively on Monday as a result of the IPO postponement.

Doosan Bobcat’s unsuccessful IPO was being led by JP Morgan and Korea Investment & Securities, while Credit SuisseHSBC, Hanwha Investment & Securities and Shinyoung Securities were co-managers.

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