IBK sells E-Mart stake after a long wait

The deal was completed four years after the Korean policy bank announced its intention to sell, coming ahead of a change in accounting rules next year.

Industrial Bank of Korea sold off its entire 3.4% stake in discount store operator E-Mart through an overnight block trade on Thursday, raising W193.5 billion ($171 million) ahead of the implementation of new accounting measures facing Korean banks next year.

The Korean policy bank executed the transaction on the back of a strong rally in E-Mart’s share price following solid fourth quarter results, when the discount store chain reported a 20.5% increase in operating profit on a year-on-year basis. The deal was priced off E-Mart’s Thursday closing price of W215,000, the highest level since November last year.

The shares were, however, lower than their trading price in 2013 when Industrial Bank of Korea first announced its intention to sell its stake in both E-Mart and Shinsegae, a local shopping mall operator. E-Mart's shares traded as high as W269,500 in November 2013 and have been on a downward trend since then.

Thursday’s sale comprised 939,480 E-Mart shares offered at an indicative range of between W200,000 and W208,500, or a discount of between 3% and 7% to the market price. The final offer price was fixed at the upper half of the range at W206,000, translating to a final offer discount of around 4.2%.

One source familiar with the situation said the block trade attracted more than 100 accounts, including sovereign wealth funds, long-only investors and hedge funds. The allocation was slightly skewed towards foreign investors, who got 60% of the deal.

The deal marks Korea's fourth follow-on offering in two months, capping over $1 billion of volumes at a time when deal flow in the rest of Asia remains muted.

Last week, Korean billionaire Shin Kyuk-ho sold part of his personal stake in Lotte Shopping for $341 million in order to settle a tax bill. Earlier this week, Lotte Chemical raised $188 million through the sale of treasury shares as part of the terms of a corporate merger five years ago.

In January BNP Paribas sold 1.8% stake in Shinhan Financial for $317 million South Korea's first secondary offering of the year.

Industrial Bank of Korea, one of the country's three policy banks, is raising equity before the implementation of a new accounting standard, known as the International Financial Reporting Standard 9, in January next year.

Under IFRS 9, Korean banks are required to switch to recognising and providing for expected credit losses on financial assets, rather than using the current practice of setting aside capital only when losses are incurred. The Financial Services Commission said the change aims to bring local regulations into line with international standards. 

Unsurprisingly, Fitch said in a research report that the new accounting standard will put downward pressure on regulatory capital.

At the end of last year, Industrial Bank of Korea’s total capital ratio and tier one capital ratio were 13.1% and 10.6%, respectively, according to S&P Capital IQ.  Korea‘s domestic systemically important banks are required to hold at least 9.5% of their bank capital as reserves.

HSBC and Samsung Securities were the bookrunners of the block trade.

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