Kexim divests IBK stake

Government takes advantage of share price rally.

The Export Import Bank of Korea (Kexim) raised $408 million yesterday (October 12) after selling a 7.9% stake in the Industrial Bank of Korea (IBK). The divestment was prompted by the government's desire to raise funds to bridge the budget deficit and the Ministry of Finance and the Economy (MoFE) has said it may sell up to 20% in the policy bank over the next two years.

As a result of the 32 million share deal, Kexim will drop from 10.2% to 2.3%, while the MoFE will continue to hold 51% and the Korea Development Bank a further 12.5%. The freefloat will expand from 26% to 34.2% and Kexim will now be locked up for 90 days.

Under the lead of ABN AMRO Rothschild, CLSA, Merrill Lynch and Samsung Securities, the deal was marketed on a discount range of zero to 4%. It was finally priced at Won13,250, which represented a 4% discount to the stock's spot close of Won13,800.

Having to price at the wide end of the range was probably a reflection of two things. Firstly the markets were not in great shape yesterday and the momentum players would have been more inclined to sit on the sidelines.

Secondly the stock has already had a great run this year. Year-to-date it is up 90.2%, outperforming the Kospi Finance Index, which is up 50%

Prior to the launch of the deal, it had ramped up 4% on Monday and 6.5% on Tuesday, before underperforming the market on Wednesday by dropping 4.8%. However, for those investors that viewed Wednesday's performance as a temporary blip, the combination of a 4% discount and 4.8% decline would have been very tempting entry point into a market where there remains a high degree of liquidity and momentum.

The order book for the deal is said to have closed just over one-and-a-half times covered with participation by roughly 70 accounts. About two thirds were international and one third domestic.

By geography, about 60% of investors came from Asia, 30% from Europe and 10% from the US. Around 25% to 30% were existing holders.

At current trading levels, IBK is valued at 1.2 times 2006 book. This represents a discount to the Korean banking average of around 1.4 to 1.5 times. It is also cheap on a PER basis, trading at 7.2 times forward earnings.

Unlike the rest of the Korean banking sector, IBK also pays a reasonable dividend and is currently yielding 4.8% on a 2006 basis.

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