Hana Financial raises equity to fund KEB acquisition

The price is fixed at W42,800 per share for a total deal size of $1.28 billion, making it the largest primary placement in Korea ever.

Hana Financial, the parent company of Hana Bank, on Thursday last week priced its earlier announced share placement to raise the remaining funds needed to pay for its acquisition of Lone Star's 51% stake in Korea Exchange Bank (KEB).

The price was fixed at W42,800 per shares and the company sold 32.6 million shares for a total deal size of W1.4 trillion ($1.28 billion), making it the largest primary share follow-on in Asia ex-Japan so far this year. The price represented a discount of 5.5% versus the three-day volume-weighted average price to Wednesday last week and a 4.9% discount to Wednesday’s close. The price was slightly higher than the W42,000 per share that was indicated when the deal was first announced on February 10, which was a direct result of the fact that the share price rose 5.9% during the three days that were to make up the reference price.

To stick with the flagged deal size of about W1.4 trillion, Hana Financial sold slightly fewer shares than initially announced, namely 32.6 million, which correspond to about 13% of the enlarged share capital and about 15 days worth of trading. The company initially said it would sell up to 34.1 million shares, to give it some flexibility in case the share price would drop between the announcement and the pricing.

As per Korean regulations, a preliminary price, a maximum number of shares on sale, and even a group of buyers have to be announced publicly before the board of directors can approve the sale, and hence an announcement was made on February 10. All the terms can be changed during the actual bookbuilding, except for the investor names. Investors on the list are allowed to drop out, but new names cannot be added after the initial announcement.

Hana initially said it had rounded up a group of 37 investors and, of those, two dropped out because they didn’t want to pay more than W42,000. The final buyers comprised global long-only funds and hedge funds as well as some big Korean investors, including Morgan Stanley Investment Management, Credit Suisse Principal Strategies, Schroder Investment Management, Prudential Asset Management, and Och-Ziff Capital Management.   

Given the level of commitment that needs to be made by the investors, private placements are rare in Korea and indeed this is the largest such deal ever and the first to involve international investors. Basically, the investors need to commit without knowing the final price, which, as in the case of Hana Financial, can end up higher than the preliminary price. But an even bigger hurdle is that they have to have their name and the size of their investment publically disclosed – something which international investors in particular are not usually comfortable with.

In this case, the bookrunner only approached investors that would be willing to commit at least $50 million – the number of investors in a Korean placement cannot exceed 49 so a substantial investment was needed -- and that they thought would be okay with getting their name in print.
The only way to get around that is for the investors to commit to a 12-month lock-up instead, which is something they like even less.

Interestingly, the placement was led on a sole basis by Credit Suisse, which was on the other side of the fence on the earlier acquisition of KEB, where it advised Lone Star. Hana Financial didn’t have an external adviser on the acquisition and supposedly felt there was no conflict of interest in using Credit Suisse for the placement since it was in the Swiss bank’s best interest too that the fund-raising was successful.

According to a source, the initial plan was to raise the equity-portion of the KEB financing by selling shares to private equity investors, and while preparing for the share placement Credit Suisse did run a simultaneous private equity process, which generated a few interested parties. However, in return for their investment they wanted board room representation and also a combination of preferred shares (which typically pay higher dividends) and common shares. In the end, the Hana board decided it would be better off doing a straight equity placement, where no investors end up with a substantial stake in the company.

The rest of the money for the $4.1 billion KEB acquisition has been raised from internal resources, including dividend payments from Hana Bank, and from a domestic bond sale.

The market has reacted positively to the acquisition, with a 12% rise in Hana Financial’s share price since the formal announcement on November 24, and a near 40% gain since the middle of that month when rumours emerged that Hana may be beating ANZ to the punch. Until then, analysts had viewed ANZ, a leading Australian bank, as the only serious suitor for KEB, and the disclosure of Hana’s interest was widely seen as a ploy to force ANZ to raise its price.

Assuming the transaction gets the relevant approvals it will rank as the largest bank acquisition in Korea, and will put an end to a drawn-out saga that began when Lone Star acquired the 51% stake in KEB for W2.15 trillion ($1.2 billion) in 2003. Since then, it has attracted a lot of grief from the Korean public which feel the Texas-based private equity investor was able to buy KEB at a bargain price in the aftermath of the Asian financial crisis. Lone Star has made repeated attempts to sell it, but have failed to agree on a price. According to KEB data, Lone Star has already recovered W1.87 trillion of its initial investment, mostly in the form of dividend payments.

¬ Haymarket Media Limited. All rights reserved.
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