JPMorgan launches Kumgang GDR

A $30 million GDR for Kumgang Korea Chemical will price on Tuesday.

In what may rank as the most petite GDR of the year, JPMorgan has launched a $30 million issue for Kumgang Korea Chemical.

The company is a Korean market leader in paints and building products and is popular with major institutional investors such as Capital and Fidelity - with foreign institutions owning about 40% of the company.

The timing of the GDR may strike some as strange. In fact, it is a legacy of a merger done in 2000 in which the company acquired Korea Chemical and was forced to buy back 13.1% of the company from dissenting shareholders and hold it as treasury stock. Regulations state that it must liquidate this treasury stock by the end of this month.

Accordingly, the company has already cancelled 6.5% of this stock - a move welcomed by institutional investors. It will sell 3.4% of the treasury stock in the domestic market, and the JPMorgan GDR represents a further 3.2%. Post-cancellation, KCC will have 10.52 million shares versus 11.25 million previously. It has a market capitalization of around $935 million.

The stock has performed relatively well lately, considering the horrendous state of markets, and is rated a buy by UBS Warburg. The current stock price is around W102,000 and UBS has a target price of W152,000. It is trading on an estimated 2003 PE ratio of 5.73 times.

Optimism on the stock comes from the fact that 55% of the company's revenue derives from supplying building materials, flat glass and PVC products to construction companies. Construction permit growth in Korea was up 43% in 2003 suggesting a lot of building is coming onstream. Construction starts increased 25.1% in February.

Lead manager, JPMorgan meanwhile has been close to the company for some time. It has led bond issues worth $200 million for the company in the past two years. The GDR is expected to price in New York hours on Tuesday.

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