Investors love S-Oil's yield

Korean refiner completes block trade.

S-Oil attracted around 20 new investors in a Wednesday evening block trade organized by Good Morning Securities and JPMorgan.

The $90.5 million block represented 4.5 days of trading and was priced at W71,000, a 3.5% discount to the closing price of W73,600. In yesterday's trading the stock traded down to the W71,000 level.

The block was being issued on behalf of 269 petrol station owners that owned a combined 3% of S-Oil's equity. The block represented 1% of S-Oil's outstanding shares.

The petrol station owners divested the stock to pay down a loan that S-Oil had originally granted them to finance the acquisition of the stake. Even after the sale, the consortium of petrol station owners still holds 2% of the oil refiner's stock.

The placing of the stock was mostly with long-only international fund managers and a select group of hedge funds. About 25% also went to domestic institutional investors in Korea.

In the current environment, investors bought S-Oil based on its highly attractive 7% dividend yield. In today's highly defensive equity market this was a key selling point. Indeed, while many equity analysts argue that S-Oil is fully valued, refining margins continue to be strong and the potential for growth still exists - as it does for S-Oil's nearest comparable, SK Corp - thank to the booming China market.

Some of the hedge fund investors may have also been taking a view on the direction of the won.

JPMorgan executed the deal in the aftermarket having had a mandate from S-Oil to sell the stake. It now ranks number one in an admittedly thin market for straight Korean equity, having issued $388 million in 2005, versus second place Citigroup with $297 million.