KB Financial Group, the owner of Korea's Kookmin Bank, has finalised the subscription price for this week's rights offering at W37,250 per share, which will allow it to raise W1.12 trillion ($907 million at today's exchange rate).
The final price is equal to the first reference price that was set on July 22, which was to be expected since KB Financial's share price has edged 2.4% higher since then. When the second reference price was set after the close of trading on Friday, it ended up just above W40,000 and since the final price was to be the lower of the two, the first reference price of W37,250 will stand. The reference prices are based on a pre-determined formula that takes into account the share price movement in the month leading up to the pricing date and then applies a 25% discount to whatever base price that yields.
With the share price trending upwards, the gap between the rights issue subscription price and the market price has also widened somewhat, which at the margin makes the offering slightly more attractive. The final price equals a discount of 32% versus Friday's closing price of W54,500.
KB Financial, which is still commonly referred to as Kookmin, will offer 30 million new shares, or 8.4% of the company's outstanding share capital, on the basis of 0.07768392 rights share for every one existing share. Investors can choose to buy either ordinary shares or American depositary shares listed in the US.
Of the total deal, 20% will be set aside for company employees, while the remaining 80% will be allocated to institutional investors. The treasury shares that are held by wholly-owned subsidiary Kookmin Bank and which represents 13.9% of the share capital, will not be eligible to participate in the offering.
The subscription for the Korea-listed shares will be open on Wednesday and Thursday (August 26-27) and existing shareholders who do not wish to participate in the offering have already been able to sell their nil-paid rights on the Korean stock exchange. Sources say there was some trading in the rights, but note that the price stayed virtually at parity with the market price, suggesting that there was demand from non-shareholders and shareholders who may wish to buy more than their initial entitlements, but it wasn't overwhelming.
However, the 13% that the share price gained -- in a rising overall market -- between the announcement of the rights issue details on July 10 and the setting of the first reference price on July 22, indicate that investors are generally positive towards the fundraising. In that context it may have helped that Kookmin settled for raising only about half of the W2 trillion that it had earlier indicated that it wanted to raise, based on information provided by investment banks that pitched for the mandate. Sources say the company has opted for a smaller size as its capital base has turned out to be stronger than expected.
In the prospectus issued ahead of the sale, the company said it intends to use the net proceeds for general corporate purposes, including the funding of potential acquisitions in the banking, securities or insurance industries, and to strengthen its capital base. It added that it has no specific plans for any acquisitions at this point.
Last month, the Korean government told the country's banks to lower their non-performing loan ratios to 1% by end of this year from an average 1.5% at the end of June. Kookmin's non-performing loan ratio was 1.38% at the end of June. Following that request, Kookmin and five other Korean banks have agreed to set up a joint "bad bank" that will buy toxic assets to help free up their balance sheets. The six banks, which aside from Kookmin includes Hana Bank, Industrial Bank of Korea, Nonghyupm, Shinhan and Woori Bank, will commit W1.5 trillion of capital to the "bad bank", which according to media reports is expected to buy toxic assets with a principal value of about W5 trillion ($4 billion).
As of the end of December last year, KB Financial had total assets of $205 billion and it posted a net profit of W1.3 trillion ($1.05 billion) for 2008 (as per US GAAP), despite the onset of the financial crisis. No US GAAP data is available for the first six months of this year, but in this period it generated a net income of W348 billion ($273 million) under Korean GAAP.
The fully-underwritten offering is being arranged by Goldman Sachs and Morgan Stanley together with domestic banks Korea Investment and Securities and Samsung Securities. The two international banks were brought in to replace Bank of America-Merrill Lynch, Citi, Credit Suisse and J.P. Morgan, which lost their mandates because of a disagreement over fees.
Kookmin is the second major Korean company to raise funds through a rights issue this year after Shinhan Financial Group's W1.3 trillion ($880 million) issue that was completed in March. Coming to market at a much more difficult time, before the general rebound in the global equity markets, Shinhan priced its offering at a 25% discount to the prevailing market price.