LIG Nex1 $100m block launched amid Korea tensions

Pre-IPO investor STIC Investments has timed the sale of shares in the defense contractor just as tensions on the Korean peninsula rise.

Private equity firm STIC Investments completed a W122.1 billion ($100 million) sale of LIG Nex1 shares late Thursday, taking advantage of the stock's climb towards all-time highs due to heightened tensions on the Korean peninsula.

Korea's STIC, one of eight investors to take a combined 49% stake in the military contractor before the company listed on the Korea stock exchange last year, marketed 1.1 million LIG Nex1 shares at an indicative price range of W104,500 to W110,000 per share, according to a termsheet seen by FinanceAsia.

Targeted at institutional investors, the deal's price range implies a 3.9% to 8.7% discount to LIG Nex1’s Thursday share price close of W111,000, within sight of the record high of W120,500 achieved in November.

Final pricing on the deal was set the the top end of the range overnight at W114,500, a source familiar with the situation said, with the book over five times oversubscribed.  

While the country's benchmark KOSPI index has dipped slightly since October, when LIG Nex1 completed its initial public offering, the defence contractor's share price has surged by 51% as investors bet on increased military spending by the South Korea government. That is largely due to worsening diplomatic relations between the two Koreas since Kim Jong-um took the helm of the North’s government in 2012.

Tensions between the South and the North elevated early this year when Pyongyang claimed it has completed the fourth nuclear bomb test last week, prompting Seoul to react by resuming its loudspeaker broadcasting campaign to the North as well as restricting access to Kaesong, an industrial complex jointly developed by Seoul and Pyongyang.

On Wednesday the tensions reached another level as South Korean troops fired warning shots at a North Korea surveillance drone flying across the demilitarised zone dividing the two nations.

As a result of these incidents, LIG Nex1's share price has risen by 11.1% in the seven trading days since January 6.

STIC is clearly making a profit from the sale but it remains to be seen whether LIG Nex1 could command a higher price because it is yet to announce any business results since its listing.

By the market close on Thursday, LIG Nex1 was valued at around W2.5 trillion, roughly three times what it was worth when STIC made its initial investment.

LIG Nex1 is a major Korean defence contractor and develops a range of military systems used in warships, jet fighters, submarines, tanks, and armoured vehicles. It also supplies guided missiles and radar systems to the South's military.

Citigroup and NH Investment & Securities are the joint bookrunners of the block trade.

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