Kepco trims stake in KPS via $144m block trade

The fixed price deal is upsized by 26% following good demand from both international and domestic investors.

Korea Electric Power Co (Kepco) has sold a 7% stake in its maintenance and repair unit, Kepco Plant Service & Engineering (KPS), raising W152.14 billion ($144 million).

The deal, which was launched and completed after the market closed on Tuesday, comes after the Korean power producer said in early November that it intends to sell part of its holdings in certain subsidiaries as well as other non-core holdings to deal with its debt financing problems.

According to a banker, it named KPS as well as Kepco Engineering & Construction and telecom operator LG Uplus as targets for sale.

The three stocks have come under pressure since the announcement as the pending sale has acted as an overhang. KPS, which was 70% owned by Kepco before the transaction, has fallen 6.5% since the end of October and is currently close to this year’s low point of W50,100 that it reached in mid-March.

The stock is pretty volatile, however, and has fluctuated in a range between that low and a high of W59,300 throughout the year. It is currently down 17.4% since the beginning of the year.

While this makes it a less-than-perfect time for Kepco to sell, it would likely have been difficult for the stock to recover with a potential share sale hanging over it – especially since it is pretty thinly traded to begin with.

Putting the transaction behind it, KPS will have a better chance of a share price recovery. It should also benefit from the increased liquidity as the sell-down will lift the free-float by 23%.

Kepco initially offered to sell 2.5 million shares at a fixed price of W48,300, which translated into a 4% discount versus Tuesday’s close of W50,300. However, the size of the transaction was increased by 26% to 3.15 million shares following good demand from both international and domestic investors.

One source said the entire deal could have been allocated to international investors alone, but with two Korean bookrunners on the ticket, that was obviously not going to happen. In the end the shares were split virtually 50-50 between international and domestic accounts.

As much as 70% of the international demand came from long-only funds, which was no real surprise given the thin trading volumes – the deal accounted for 43 days of trading based on the daily turnover in the past three months.

About 30 international investors participated in the deal, which was jointly arranged by Macquarie, Daewoo Securities and Samsung Securities.

This is the fourth block trade in the past few weeks to be offered at a fixed price, which suggests that it is becoming a bit of a trend. Market watchers say part of the reason is that many of these deals are heavily anchored at launch and the bookrunners likely want to avoid a situation whether these anchors either get squeezed out of the deal or have to pay a higher price than what it initially committed to in case of strong demand from other investors.

Having a fixed price also means that the bookrunners can upsize the deal without having to make sacrificed on the price, if the demand is there. It may also help speed up the process on the night of the block trade a bit as the price negotiation with the company has been held beforehand.

Kepco’s remaining 63% stake in KPS will be locked up for 90 days.

State-controlled Kepco generates around 90% of the power consumed in Korea through its six wholly owned generation companies. Aside from the planned asset sales, its financial situation is also expected to improve after the Korean government increased electricity tariffs by an average 5.4% in mid-November.

The price increase is intended to help cool the strong demand for power in Korea that is resulting in frequent power shortages. Kepco’s share price jumped 6.9% in a single day on that news and since the announcement of its asset sales in early November, it has risen 12%.

Those gains have come even as Korea Deposit Insurance Corp (KDIC) sold its remaining 1.4% stake in the company via a $260 million block trade following the tariff hike.


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