LG International exits GS Retail through $263 million block trade

The deal attracts strong demand from domestic and international investors and comes after the Korean retail company has rallied nearly 70% since the December 2011 IPO.

LG International has raised W287 billion ($263 million) from the sale of its remaining 12% stake in GS Retail, a Korean operator of convenience stores and supermarkets.

The block trade came after GS Retail’s share price rose 2% to W32,550 yesterday, which took its year-to-date gain to about 40%. The stock, which listed on the Korea Exchange in late December last year, has climbed 67% from its IPO price of W19,500.

Korea’s Kospi index, which fell 0.7% yesterday, is up 4% so far this year.

Before yesterday’s transaction, Korean conglomerate LG International was the second biggest shareholder in GS Retail after GS Holdings, which owns 65.8%, according to Bloomberg data.

The GS Group and LG Corp used to be one entity until the former was spun off in 2004. LG International had been expected to exit its legacy position in GS Retail. The $260 million IPO last year consisted entirely of secondary shares sold by LG International.

Last night it sold its final 9.2 million shares at W31,200 each, which represented a 4.15% discount versus yesterday’s close of W32,550, a source said.

The price was fixed at the mid-point of the indicative range, which ran from W31,000 to W31,400 per share. The price range translated into a discount of 3.5% to 4.8% to the latest close and suggested a deal size of W285.2 billion to W288.9 billion ($261 million to $265 million).

Some market participants argued that the discount was too tight, but with the deal being well anchored, that proved to be no obstacle. Indeed, the fact that the price was fixed at the mid-point suggests that investors were quite comfortable with the level on offer.

The deal attracted strong demand both from domestic and international long-only and hedge fund investors and was covered very quickly, the source said, adding that the bookrunners had sizable domestic and international anchors in place before launch. In excess of 50 investors participated in the transaction.

The order books opened after the close of Korean trading yesterday (around 4pm Hong Kong time) and closed after a couple of hours.

Barclays was the sole bookrunner.

KT Skylife
Also in the market last night was a second Korean clean-up trade that saw Korean broadcasting company MBC sell its remaining 4% stake in satellite pay-TV provider KT Skylife to raise about $52 million.

The small deal was clearly timed to take advantage of the increased focus on the Korean pay-TV market following the recent IPO of cable-TV operator CJ HelloVision and a source said there has been a lot of interest in the KT Skylife stock in the past few weeks. The share price jumped 4% yesterday and is up 26% since mid-September.

As a result of yesterday’s gain, the shares were offered at a pretty wide discount (especially for a Korean deal) of between 4.3% and 7.5% versus the latest close of W31,550. This translated into a price range of W29,180 to W30,200 per share. The price was fixed slightly below the mid-point at W29,500 for a 6.5% discount.

This deal too was heavily anchored, primarily by domestic investors, but there was also a lot of incremental demand. When the order books closed after a couple of hours, the offering was more than three times covered by almost 40 investors.

Most of the demand came from domestic accounts, but the source said there was a “reasonable showing” from international investors.

Goldman Sachs was the bookrunner.

CJ HelloVision, South Korea’s biggest cable-TV provider, is set to raise W293.21 billion ($267 million) from its initial public offering after fixing the price slightly below the mid-point of the range earlier this week. The stock is scheduled to start trading on November 9.

The IPO price valued HelloVision at 11.3 times its projected 2013 earnings, which put it at a discount to KT SkyLife. At the time, the latter was trading at 14.1 times next year’s earnings, although that has since increased to 15.6 times.

Posco Specialty Steel
And as if to confirm that the Korean equity capital markets have sprung back to life, Posco Specialty Steel has filed the indicative terms for its upcoming IPO with the Korean regulators. Late on Wednesday, the company said it intends to offer 14 million shares at an indicative price between W28,000 and W33,000 each.

This suggests that it could raise up to W462 billion ($423 million), although the price range may well change before the launch.

According to a source, bankers started pre-marketing the deal to domestic investors yesterday and will approach international investors in a couple of weeks. As per the current timetable, the IPO could launch late November.

Goldman Sachs, KB Investment & Securities, Korea Investment & Securities, and TongYang Securities are joint bookrunners.

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