KDB monetizes stake in INI Steel

Overhang removed from stock as creditors divest shares.

Joint leads ING and JPMorgan sold a $107 million GDR in INI Steel stock yesterday (Thursday). The deal was designed to remove an overhang on the Hyundai group stock following a debt-for-equity just over three years ago.

A total of 16.9 million GDS units were sold at $6.31, representing a 4.6% discount to the stock's Won7600 close and 30 days trading volume. There is a ratio of one unit per share.

The transaction comprised 14.6% of INI's outstanding equity and resulted in a sale of 6.1% by KDB, 2.4% by Cho Hung, 2.3% KDB Capital, 1% Hana Bank, 0.7% Kookmin and 2.1% by INI Steel in the form of treasury shares. At the same time, the company has initiated a share buy-back programme for 17.5 million shares, which it hopes to complete by December.

Books are said to have closed two times covered, with the three largest orders alone enough to cover the entire book. A total of 60 investors participated in the deal, with an even geographical split between the three regions.

Year-to-date, the stock is up 31.03%, outperforming both Posco, which is up 29.21% and the Kospi up 17.3%. Over the course of pre-marketing and roadshows the stock has risen and fallen 10% to end the process flat to where it started.

At 0.5 times 2002 book, bankers argue that it still has a lot of value and should partly be viewed as a restructuring play and partly a play on Korean economic growth. Other analysts have a more neutral view and state that margins could become depressed by rising raw material prices. Scrap steel, for example, has risen from $169 per tonne to $179 per tonne over the past few months.

INI closely tracks the construction sector, the main client for its long steel products such as rebars and H-beams. The company is held by a variety of Hyundai group companies including Kia Motor, the largest individual shareholder with a 14.9% stake and Hyundai Motors on 4.8%.

Having removed the share overhang, management have said they intend to concentrate on debt reduction measures ahead of increasing the company's dividend pay-out ratio. The stock currently yields 2%.

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