KDB raises $293m in Kumho Petro block

The Korean policy bank took advantage of a rise in Kumho’s stock price to launch the clean-up trade.

Korean Development Bank raised $293 million from a clean-up trade in Kumho Petro Chemical on Wednesday, taking advantage of a 3.3% one-day rise in the company’s shares to launch the share sale.

On offer were approximately 4.3 million secondary shares at an indicative price range between W75,671 to W78,979 per unit, representing a 4.5% to 8.5% discount to the June 3 closing price of W82,700 per share, according to a term sheet seen by FinanceAsia.

KDB saw the the 3.3% rise in shares as an opportune time to offload its entire 14.05% stake in the synthetic rubber and rubber chemical manufacturer. Year-to-date, shares are up 2.6%.

Deutsche Bank, Credit Suisse and Daewoo Securities handled the share sale.

Despite local markets experiencing a decline — the country’s bellwether Kopsi Index is down 2.3% since the end of May — a source close to the deal noted that Kumho Petro’s shares have been rising, as have its peers, including Lotte Chemical Corp and Hanwha Chemical. Lotte Chemcial jumped 4.8% in the past day while Hanwha rose 1.8%.

Despite the jump, Kumho Petro’s shares were still a ways off of all-time highs, leaving more room for upside.

“It looks interesting for people right now,” the source told FinanceAsia before books closed on Wednesday in Hong Kong. “It’s not trading at any highs, which are around W110,000. So it’s looking attractive.”

The source said that a large chunk of the deal would likely be taken up by local long-only institutional investors that were already substantial shareholders in the company. There was also some interest from global hedge funds. The syndicate did not engage in a wall-cross process before the block launch.

Allocations were still being finalized at 7am on Thursday in Hong Kong. Shares priced at W75,671, a wide 8.5% discount to the last close and the bottom of the indicative range.

Sources close to the deal described the book as well oversubscribed, with 70 lines participating in total. Some 40 lines were international investors and 30 local. Allocations were also skewed towards international, with this tranche receiving 60% of the book. Forty percent went to the local tranche.

A mix of global and local long-only institutional investors and sovereign wealth funds received 60% of the book, while the remaining 40% was made up of hedge funds.

Kumho Petro has an average 60-day trading volume of 136,118 shares. It is trading at 16.44 times its 2015 earnings. While more expensive than Lotte Chemical’s 13.33 times 2015 earnings, it is significantly cheaper than Hanwha’s 27.86 times.

Kumho Petro reported a net profit of W88.3 billion ($79.7 million) in 2014, compared with a net loss of W44.8 billion in 2013, and is forecast to steadily increase net profits over the next three years — W156.9 billion in 2015, W262.2 billion in 2016 and W369.9 billion in 2017, according to research by Shinhan Investment Group.

One of the company’s issues in the first quarter this year is its synthetic rubber division, which recorded a small operating profit margin of around 2%, similar to the fourth quarter last year, according to Shinhan research. This was due to “poor tire demand and excess supply of Chinese synthetic rubber.”

However, Shinhan analysts are optimistic about the second half of the year, arguing that profit margins in its synthetic rubber business should recover later in 2015 due to the drop in oil prices — more people will drive further distances in their cars because fuel is cheap, which will lead to stronger demand for tyres and rubber.

“Meaningful earnings improvement is likely to come after the second half of 2015 when low oil prices boost tyre demand and China’s supply glut is eased,” Shinhan research said.

Samsung Securities echoed the sentiment, noting that although synthetic rubber prices have risen very slowly, it expects “the synthetic rubber business to improve gradually going forward, as global tyre demand should rise this year — albeit modestly — and synthetic rubber prices are rising on cost-push factors.”

Shinhan is forecasting a compound annual growth rate of 40% for Kumho Petro in the next three years.

Kumho Petro sold W386 million worth of synthetic rubber in the first quarter, down from W414 million sold in the fourth quarter last year. Samsung is forecasting sales of W402 million in the second quarter, W459 million in the third quarter and W443 million in the fourth quarter.

Hong Kong
Also on Wednesday in Hong Kong, Chinese software company Kingsoft sought to raise up to $365 million from a top-up placement under JP Morgan and Morgan Stanley.

Some 100 million primary shares were on offer between HK$27.35 to HK$28.30 per unit, representing a 3.4% to 6.7% discount to the last close, according to a term sheet. There is a 90-day lockup.

¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media