Goldman Sachs last Thursday sold slightly less than half its stake in Hana Financial Group, raising W322.5 billion ($298 million). The sale, which was done as a fixed-price block trade before the opening of the Korean market, came about six months after Temasek sold its entire stake in the company and as Hana awaits approval to buy Lone Star’s majority stake in Korea Exchange Bank.
A source said Goldman’s divestment was caused by a need to take some risk off the table after holding the Hana shares since 2005 and does not mean that it is lacking confidence in the financial group, which operates the fourth-largest bank in Korea. The fact that Goldman will keep more than half its original holding should be proof of that, the source said. The US bank holds the Hana shares through a portion of the bank known as its Principal Investment Area, or PIA, and hasn’t sold any shares since it made its initial investment.
However, some Korea-based analysts said after the sale that there was a risk that Goldman’s remaining portion could turn into an overhang. The term sheet didn’t mention whether the bank will be subject to a lockup.
The offering comprised 7.5 million shares, or a 3.1% stake in the company, which leaves Goldman holding 4.5%. As is typically the case for block trades launched and completed before the start of the trading day, the shares were offered to investors at a fixed price of W43,000. This translated into a 6.5% discount versus Hana’s closing price of W46,000 last Wednesday.
The deal was selectively marketed to a small group of investors, and the source said about half the transaction was anchored with key investors pre-launch. This would have made Goldman — as the seller and sole bookrunner — reasonably comfortable that it would be able to complete the deal in time and at the given price.
The latter was likely a key consideration after Temasek was forced to widen the discount on its earlier sale well beyond the original offering range of zero to 3.5% to as much as 6% before it could get the Credit Suisse-led deal off the table. Temasek finally achieved a price of W33,400 per share, which allowed it to raise $603 million from the transaction.
Since then, the share price has been edging upwards helped by Hana’s pending acquisition of a 51% stake in KEB and the fact that it has successfully secured all the funding needed to cover the $4.1 billion deal. The stock hit a high of W49,700 on April 4, which may have convinced Goldman to sell now.
The US bank invested about $520 million in the Hana group in 2005 to help fund its acquisition of Daehen Investment & Securities, which gave it a stake of around 9.5%. That has since been diluted down to the 7.55% that it held before last week’s sale. Having raised closed to $300 million from the sale of 41% of its total holdings, Goldman has now recuperated about 58% of its initial investment, which implies that it has made a slight return on its investment — so far. The final return will of course depend on the price at which it eventually sells the rest of the shares.
The deal was launched at about 6.30am Hong Kong time, but partly thanks to the pre-launch anchor process, some international investors did participate in the trade despite the early hour.
Goldman’s sell-down and the exit by Temasek in October last year mean that the National Korean Pension Fund is now the largest shareholder in Hana Financial with about 8% of the issued share capital.
Hana’s share price dropped 2.8% to W44,700 on Thursday, but then recovered some of that loss to end at W45,500 on Friday when trading was thin due to the Easter holidays in many Asian markets. Yesterday, Hana dropped 4.3% but still closed above the placement price at W43,550.
Analysts are still overwhelmingly positive on the stock, however, with 37 “buy” recommendations, two “holds” and no “sells”, according to Bloomberg data. Their average target price is about W57,770, which implies a 33% upside from current levels.