KCC reduces stake in Hyundai Heavy via $601 million block

As the first major block trade in Asia, the deal sends a positive message about investor appetite to other potential sellers, although investors are expected to stay selective as the market environment remains uncertain.

Korean construction materials manufacturer KCC Corp raised W697.2 billion ($601 million) last night through the sale of a 3% stake in Hyundai Heavy Industries, the world’s biggest shipbuilder.

This was Asia’s first major block trade this year and saw KCC take advantage of the fact that there are no competing transactions in the market. If KCC had waited much longer, it would also have run into the blackout period related to the fourth quarter results, a source said.

KCC sold 2.49 million shares in the Korean blue-chip at W280,000 apiece, which marked a discount of 3.9% versus yesterday’s close of W291,500. Encouragingly, the price was fixed at the top of the indicated range, which ran from W271,500 to W280,000 per share and translated into a discount between 3.9% and 6.9%. J.P. Morgan was the sole bookrunner.

The transaction attracted long-only funds, quality domestic investors and some hedge funds, the source said. The demand was divided fairly evenly between domestic and international investors, though there was a lot more demand from Asia than from Europe.

Hyundai Heavy’s share price has lost about 40% in the past 12 months amid growing worries about another global recession, underperforming a 10% decline in the Kospi index during the same period. The source noted that after such a steep fall, investors likely felt that now is the time to re-enter the stock.

Through this sale, KCC halved its stake in the shipbuilding company from about 6% that it previously held.

KCC is a long-time investor in Hyundai Heavy, which was founded in 1972. Its last purchase of the shares was in 2003 and while KCC has issued two exchangeable bonds into Hyundai Heavy before, this was its first actual sell-down in the company.

In October 2007, KCC issued bonds into Hyundai Heavy as part of a three-tranche deal that could also be exchanged into treasury shares of KCC itself and shares into marine transportation company Hyundai Merchant Marine (HMM). However, in November 2008, KCC bought back $183 million of that exchangeable at 82% of face value through a tender.

Then in April 2009, KCC raised $200 million from a new, upsized, five-year bond that was also exchangeable into Hyundai Heavy shares.

KCC has also been divesting its holdings in other stocks. In July 2011, the company raised W635.5 billion ($597 million) from the sale of its remaining 17% stake in Mando Corp, a Korean auto parts maker.

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