Goldman to launch Asian tech offerings despite tough equity markets

Korean e-commerce marketplace provider Gmarket and Chinese audiovisual advertising firm Focus Media hopes to raise a combined $850 million.
Gmarket looks set to become only the second Korean company after Lotte Shopping to sell shares to international investors through an initial public offering this year. It is expected to ignore the sharp decline in global equity markets over the past month and kick off a formal road show later this week.

The e-commerce marketplace provider, which has a leading position in its home market, is aiming to raise between $100 million and $150 million in a Nasdaq listing that is said to have attracted a lot of interest after Yahoo! Inc. last week bought a 10.5% stake in the company.

GmarketÆs offering will overlap with the share sale of another Asian technology company. China-based Focus Media is currently on the road marketing a $600 million to $700 million follow-own offering. It is the second time this year the audiovisual media advertising firm is selling shares and like last time the offer consists primarily of secondary shares.

Bankers say the fact that two regional tech companies are looking to tap the equity capital markets at the same time û and at a time when difficult market conditions have slowed primary market issuance to a bare minimum û is a pure coincidence and not a trend in the making.

Indeed, Taiwan computer manufacturer High Tech Computer Corp., which was looking to sell between $500 million and $600 million worth of GDRs in a Goldman Sachs-led offering this month, has decided to hold off on the deal until the secondary markets stabilise, sources say.

GmarketÆs much smaller offering, which also has Goldman Sachs as global coordinator and joint bookrunner with Cowen & Co, is believed to be on track, however.

ôClearly these are challenging markets, but the feedback on the back of the Yahoo! news is said to have been pretty positive and the deal seems likely to go ahead later this week,ö one source familiar with the marketing process says.

ôThe markets are definitely more choppy and investors are more discerning now, but the past month has also shown that the markets are still open for good transactions and good companies,ö notes another source.

Yahoo!Æs pre-IPO acquisition in Gmarket is viewed as a sign the US Internet giant has confidence in the growth of the e-commerce retail market in Korea, which is already the largest in the world in terms of the percent of the population that shops online. The country also has the highest broadband penetration in the world and is seeing growth in both consumption and disposable income, which makes for a good backdrop to the online retail market.

Yahoo!, which operates the most visited Internet site in the US, will buy about 4.5 million shares in Gmarket from existing shareholder Oak Investment Partners for $60 million or $13.32 per share, according to the preliminary listing prospectus. Last year, Yahoo! employed a similar expansion strategy in China when it bought a 40% stake in online retailer for $1 billion.

While the Korean online shopping market is quite fragmented and highly competitive, a source familiar with the company says Gmarket has established itself as a leading player by going from a market share of 3-4% to 20% in less than a year.

The company itself attributes its rapid growth to its ability to facilitate the interaction among a growing critical mass of buyers and sellers. For example, it offers its customers multiple trading platforms, including fixed price, fixed price with options, negotiations, group buying and auctions.

ôWe believe sellers are attracted to our website for our cost effective, end-to-end sales and marketing channel and access to a broad audience of buyers, while buyers are attracted to the site as we provide an entertaining and secure shopping environment with more than 1.7 million products for sale in 27 product categories at competitive prices,ö it said in the preliminary listing prospectus.

The products on offer include clothes, beauty products, computers, electronics, furniture and jewelry.

As of the end of April the company had more than 8.6 million registered users, up from 7.2 million at the end of last year, and in the first four months this year the average number of unique visitors to the site each month was about 15.3 million. In the first quarter, the companyÆs gross merchandise value (GMV), or the total value of all goods sold on an e-commerce marketplace, reached W469.2 billion ($483 million) compared with total online retail sales in Korea of W3.15 trillion ($3.2 billion) in the same period.

The Korea Information Strategy Development Institute projects the combined GMV for all online shopping malls in Korea will jump to W14.6 trillion ($16 billion) in 2008 from W10.7 trillion split on 4,335 virtual malls in 2005 and W7.7 trillion in 2004.

One of GmarketÆs direct competitors is Internet Auction Co, which is a online auction site wholly-owned by eBay. However, Gmarket has a bigger focus on fixed-price sales and acts, among other things, as an online storefront for small companies which donÆt have their own website.

These companies will typically pay Gmarket a transaction fee on everything they sell. The company also derives revenues from advertising and fees associated with premium listings, keyword searches for sellers and membership programmes.

The majority of the shares on offer will be primary, but a number of existing shareholders have also indicated their desire to sell secondary shares. How much they will eventually end up selling will depend on the demand, according to people familiar with the offering.

Oak Investment, which was one of the largest shareholders with a 28.6% stake before the sale of 10.5% to Yahoo!, may or may not sell more shares in the IPO, they said.

Comparables to look at include Interpark Corp, a Seoul-listed shopping mall that provides products ranging from books and clothes to live event tickets. The company, which is also GmarketÆs single largest shareholder with 33.4%, trades at a 2007 PE multiple of 17.2 times, according to Bloomberg data.

Its non-Korean peers fetch higher valuations, however, with trading at 39.7 times its projected 2007 earnings and eBay at 23.7 times. In Japan, online shopping mall provider Rakuten is quoted at a PE of 23.6 times.

The price paid by Yahoo! would value Gmarket at 83 times its fully diluted 2006 earnings as extrapolated from the results for the first quarter, which is likely to be too conservative, and based on the number of shares outstanding at the end of March.

The company has yet to determine what proportion of the company it will sell or how many new shares will be issued but each common share will be equal to one GDR. If the roadshow goes ahead this week, the company will be expected to price the offering in the last week of June, according to sources.

It will use the money raised to upgrade and expand its network as well as for marketing activities and other corporate purposes. Part of it may also go towards investments in or acquisitions of complimentary businesses, including companies engaged in online sales of goods and services, and to set up one or more subsidiaries overseas to pursue growth outside of Korea.

The company stressed, however, that it isnÆt actively seeking and hasnÆt made any decisions with respect to any specific targets.

Gmarket posted a net profit of W5.09 billion ($5.24 million) in 2005 compared with losses of W1.44 billion in 2004 and W1.76 billion in 2003. Revenues increased by close to 400% to W70.34 billion ($72.4 million) last year. In the first quarter this year, revenues were already W28.34 billion, while net profits reached W1.93 billion.

Meanwhile, Focus Media is offering 7.93 million ADS (each accounting for 10 common shares), of which 1 million, or about 13%, are backed by primary shares. There is also a greenshoe option to sell a further 1.19 million ADS.

About $24 million of the net proceeds will go towards the financing of the $325 million acquisition of its largest mainland rival, Target Media, earlier this year, while another $20 million is intended for capital expenditures related to the expansion of its network, according to an SEC filing.

The rest of the shares are to be sold by the original venture capital investors after a six month lock-up following a similar sell-down exercise at the end of January was waived a month early.

ôThis is a big clean-up exercise which will see most of the original investors exit the company and remove the overhang that was created by an anticipation that they would eventually sell,ö one banker says.

About 78% of the $295.3 million worth of ADS sold in January at a 1.36% discount to the market price of $44.10 were also secondary. The share price continued to rally after the sale and reached a record high close of $69.18 in mid-May before the current share offer and the generally weak market environment started to weigh on the price.

Focus Media, which operates the largest out-of-home flat panel display advertising network in China, closed at $54.05 last Friday, having more than tripled since its IPO in July last year which was done at $17 per ADS. The pricing on the current deal is expected to be finalised on June 15.

Goldman Sachs and Credit Suisse are global coordinators for the offering as well as joint bookrunners together with Citigroup and Merrill Lynch.

¬ Haymarket Media Limited. All rights reserved.
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