An undisclosed institutional shareholder raised about W377.5 billion ($356 million) from the sale of preference shares in Samsung Electronics after the market closed on Thursday.
The deal, which came the day after the Korean manufacturer of semiconductors and consumer electronic products outlined its long-term strategy at an analyst day, was initially launched at a size of about $250 million. On the back of strong demand, it was later upsized by 40% to about $350 million and, once it priced, the final size ended up slightly above that.
In addition to the enlarged size, the bookrunner was also able to fix the price at the top of the range for a 6% discount to the latest close.
One key reason for the strong interest was the opportunity to play the difference in price between the preference shares and the ordinary shares. The preference shares, which come with no voting rights, gained 0.8% to a close of W1.037 million on Thursday. That put them at a 28% discount to the ordinary shares but, once you add in the placement discount, that widens to about 34%. Historically the preference shares have been trading at a discount ranging from about 25% to 45%, so there should be room for further tightening.
The ordinary shares fell 1% to W1.437 million on Thursday, amid some disappointment about the management’s announcement of a lower-than-expected 1% dividend yield target for 2013.
The arbitrage opportunity would have appealed primarily to hedge funds, but in fact, the majority of the demand came from global long only investors and domestic institutions, reflecting the general optimism about the company’s growth outlook. Of the 53 analysts who follow the company, according to Bloomberg data, 49 have a ‘buy” recommendation on the stock. The average 12-month target price is just over W1.83 million, which suggests close to 30% upside from the current levels.
According to a source, the deal attracted more than 80 investors and about $1.3 billion of demand, which meant it was more than 3.5 times covered a the enlarged size. About a quarter of the shares were allocated to domestic investors who came into the deal in size.
There was some demand from the US but, since the order books closed at 8pm, there was not too much time for US-based accounts to have a look at the transaction, especially since the US moved away from day-light savings time this past weekend. New York is now 13 hours behind Hong Kong.
The shares were offered at price between W954,000 and W975,000, which translated into a discount of between 6% and 8% versus Thursday’s close. As noted the price was fixed at the top.
The number of shares for sale were not fixed at launch but rather the deal was offered at a fixed size in US dollar terms. Based on the final price, the vendor ended up selling 387,189 preference shares, which account for about 1.7% of the total number of preference shares outstanding. It works out at an even smaller portion of the overall company since Samsung has just 22.8 million preference shares compared with 147.3 million ordinary shares.
The preference shares are quite liquid though – the placement translates into about 12 days of trading volume – and are pretty widely held. The seller was identified only as an institutional shareholder, but according to the term sheet it will still own more preference shares after this deal which will be locked up for 30 days. The source said that, thanks to the strong demand, the vendor was able to sell the entire number of shares that it had planned to depart with in one go and hence it is unlikely to return to the market any time soon.
Samsung’s ordinary shares have gained about 18% since they hit a 2013 low in early August, but are still trading below where they were it traded in the first five months this year.
At $356 million, this is the largest block trade in Asia since Bank of America sold its remaining stake in China Construction Bank through a $1.47 billion deal in early September. Korean steel maker Posco raised $743 million from the sale of treasury shares the following week, but that was done as a club deal and was flagged to the broader market only after it was completed.
Citi was the sole bookrunner for the transaction.