Korea's first IPO available to foreigners prices high

Samsung Card prices its $619 million offering 6.7% above the top of the range following strong demand and a shift in sentiment towards the Korean market.
Samsung Card, a leading Korean credit card issuer and the consumer finance unit of the Samsung Group, will raise W576 billion ($619 million) from its initial public offering after fixing the price 6.7% above the top of the earlier indicated range.

Being the first Korean IPO with an international tranche, all eyes were on this offering, but the strong demand suggests investors are already comfortable with the new structure. The international tranche, which accounted for 30% of the total deal, was more than 60 times covered with over 200 accounts in the book, according to a source close to the transaction. Domestic and international institutions combined ordered about 36 times the 60% set aside for them.

Merrill Lynch was the sole bookrunner for the international tranche, while Korea Investment & Securities arranged the domestic sale.

The new regulations that allow Korean firms to sell part of their domestic IPOs to non-Koreans is giving a whole new group of issuers access to international liquidity and as such is expected to be a major positive event for the Korean market.

Previously, international capital has been a possibility primarily for the large-cap firms that were able to do deals that were large enough to split the pools of liquidity into two tranches û one backed by domestic common shares and one involving the issuance of American or Global Depositary Receipts. In the case of Samsung Card, international and domestic investors are buying the same shares, which means the liquidity pool isnÆt split up. The size of the offering could thus be significantly smaller than for a dual listing and still provide sufficient liquidity for investors.

ôInvestors were buying because this is a great company and the only independent credit card issuer in Korea (i.e. it isnÆt tied in with a bank), but the new structure is also something that drew them to the deal,ö says one observer.

The company offered a total of 12 million shares, or 11.4% of the company, at a price between W40,000 and W45,000 and set the final price at W48,000. Investors looking at the deal note that over the last few days of the two-week roadshow the bookrunner had guided the market to the fact that the deal might price as high as W50,000 given the solid demand.

The Korean market has also rallied 7.6% during the marketing period and yesterday closed at a new record high of 1,769 points, which meant the initial price range had cheapened somewhat in relative terms.

The order book was said to have been a ôwhoÆs whoö of the international investment community with most top tier accounts out of Asia, Europe and the US submitting orders. The conversion ratio from the around 60 one-on-one meetings held during the roadshow was about 90% and on top of that the management also met with some 150 investors in small group luncheons, according to people familiar with the roadshow.

The interest for the Samsung Card IPO fits in with the findings of Merrill LynchÆs latest monthly fund manager survey, which was published yesterday. The survey shows that among the Asia Pacific markets, investors are the most bullish about Korea for the second month in a row with 18% saying this is the market they are the most likely to overweight in the coming 12 months.

With Samsung Card being only the second Korean equity offering of size this year, following the $498 million sale of Hana Financial Group shares by former partner Allianz earlier this week, it offered an obvious opportunity for people wanting to lift their exposure.

Interestingly, the second most popular market is Taiwan, suggesting there is a shift in sentiment back towards export markets. Indeed, the survey confirms that for the first time since May 2006, investors have also increased their preference towards export sectors.

Half the Samsung Card shares were primary shares, while the remainder were sold by the Samsung Group, which currently holds 89.9% of the card issuer through various group companies. The net proceeds from the new share issuance will be used to repay debt and for working capital and other corporate purposes.

The 70% domestic tranche was split into three portions, resulting in 20% of the total deal going to retail investors, 20% to employee share options and 30% to domestic institutions.

Given that the regulatory change that made this issue a possibility has been driven partly by Korean issuers, it is reasonable to expect other companies to follow suit and do their own domestic IPOs with an international tranche now that the first one has proved successful.

Aside from the increased liquidity in their stock, this also makes sense in light of another rule change that took place last year which has meant that issuers who want to sell GDRs or ADRs now have to file in Korea as well û or face a one-year lock-up on conversion of the DRs into common shares. If the issuers have to go through the same approval and documentation process as for a domestic listing, they may as well just do the domestic listing with an international tranche attached, bankers argue.

Samsung Card is due to start trading on June 27.
¬ Haymarket Media Limited. All rights reserved.
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