IBK, KStone cut Daewoo E&C stake further

Shareholders of the Korean building company waived their lockup restrictions to execute a $158 million share placement, making the most of a recent bull run.
Daewoo E&C's chemical project at Mesaieed, Qatar
Daewoo E&C's chemical project at Mesaieed, Qatar

Industrial Bank of Korea and US asset manager KStone Partners sold W177.6 billion ($158 million) worth of shares in Daewoo Engineering & Construction (Daewoo E&C) through an overnight block sale on Tuesday, the second time they've sold part of their stake in the South Korean builder in less than two months.

Through their jointly-owned SEBT Investment vehicle, the companies sold 5.8% of Daewoo E&C at W7,400 per share, or an 8.9% discount to the stock’s Tuesday close of W8,120. The 24 million-share deal was pitched at W7,400 to W7,720 when subscription opened late Tuesday afternoon.

In an unusual move, the vendor and its sole placing agent, JP Morgan, came to an agreement to waive the 60-day lock-up they agreed to after the previous share sale on April 13.

A source familiar with the situation said both sides were eager to benefit from a surge in the share price, which has risen 21.5% since the earlier sale.

The deal was launched with full visibility on demand, since orders from wall-crossed accounts were sufficient to cover the entire deal. Still, the sellers decided to price at the bottom of the guidance, the source said, out of a desire to leave something on the table for investors and avoid a massive sell-off in the secondary market.

In a tightly-allocated order book, the sellers placed half the deal to the top five accounts to ensure stable aftermarket performance. The book was well over-subscribed, with the bulk of the demand coming from hedge funds, but allocation was skewed towards a couple of long-only investors.

The strategy appears to work nicely, with Daewoo E&C shares trading comfortably above the offer price at around the W7,600 mark early Wednesday.

SEBT Investment has agreed to a further 90-day lockup on its remaining 4.5% stake.

IBK and KStone are cutting their shareholding in Daewoo E&C ahead of a potential sale by its controlling shareholder Korea Development Bank, which owned 50.75% of the builder as of Tuesday.

Korea’s policy bank invited bids for due diligence last year, and is widely tipped to initiate the sale process by the end of this year on the back of improving financial conditions and a strong earnings outlook.

Saudi Arabia is reported to be one potential buyer of the Korean builder, with the country's sovereign wealth funds tipped to make a bid when the sale process begins.

Daewoo E&C counts the Middle East as its biggest market outside Korea, with major projects including a $910 million industrial complex in Qatar and a $240 million chemical plant project in Saudi Arabia.

Should the sale go ahead, it would end a second spell of public ownership for Daewoo E&C, which was first taken over by the government after Daewoo Group went bankrupt in 1999.

Daewoo E&C was acquired by Kumho Industrial in 2006, but returned to public ownership in 2010 after the construction firm was forced to sell the stake to KDB as part of its debt restructuring plan.

¬ Haymarket Media Limited. All rights reserved.
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