Kumho Tire rolls out IPO

Korean tire manufacturer completes first dual listing in London and Seoul.

Korea's Kumho Tire priced a $363.5 million (Won373.36 billion) IPO at the mid point of its indicative range on Friday via lead managers JPMorgan and Daishin Securities. The company raised $266.5 million from the international offering, which comprised 37.28 million GDS units and Won99.6 million from the domestic offering, which comprised 6.8 million shares.

There is also a greenshoe of four million GDS units and one share equals two units. Pricing was fixed at Won14,650 per share or $7.13 per GDS. This represented the mid point of a Won13,250 to Won16,000 range.

The company offered 40% of its enlarged share capital through a combination of old and new shares, although this includes an 11% strategic stake by Cooper Tire of the US, which was fixed at the IPO price. This means the freefloat will comprise roughly 29%, with the Military Mutual Aid Association (MMAA) dropping from 50% to 25%, Kumho Industrial from 30% to 21% and creditors from 20% to 14%.

The main pricing benchmark is Kumho's direct competitor, Hankook Tire. When pricing was fixed ahead of Friday's open in Seoul, the latter was trading at Won11,500 or about 8.8 times 2005 earnings.

Kumho was priced at 7.4 times, equating to a 15.2% discount. Bankers thought this reasonable given the need for an IPO discount and Hankook's current size and efficiency levels, which both outpace Kumho. In turn, Kumho is forecasting higher growth going forwards as it shifts new manufacturing to China.

However, analysts favour both companies and Kumho's marketing has had a positive influence on Hankook, which has outperformed the Kospi over the past month. Since pre-marketing began, Hankook has risen 12.8% compared to 4.78% for the overall index.

Specialists say that some funds that had owned Hankook decided to take profits on the back of this outperformance and bought Kumho instead. Others decided they only wanted to hold one tire company and decided to stick with a company they already knew.

The result was an international order book that closed about three-and-a-half times covered with participation from just over 80 accounts. The appeal of a London listing to some sections of the global fund management community is clearly highlighted by the distribution statistics, which show that 42% of demand came from Europe, 36% from Asia and 22% from the US.

The Korean portion of the deal will not be allocated until after Chinese New Year, as the retail order has not yet opened. This will run from February 11 to February.

This means there is a long delay before listing - February 16 London and February 17 Seoul. Specialists say this market risk was a marginal factor that dictated pricing in the middle of the range.

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