Probably the gutsiest placement in the world

Carlsberg sells remaining 13.1% stake in Korea's Hite Brewery for $235 million as markets slump.
Carlsberg has sold its remaining 13.1% stake in KoreaÆs Hite Brewery through a placement that took investors by surprise given the ongoing sell-off in global equity markets that has now lasted for more than a month.

Yesterday alone, KoreaÆs Kospi index lost 2.9% and FinanceAsiaÆs FA100 index, which tracks 100 bluechips in the region outside of Japan, plunged 3% to 1,367.3 amid rapidly growing fears that a pick-up in US inflation will force the Federal Reserve to keep up its rate hike campaign for some time yet.

The placement, which was only the second block trade over $100 million in Asia since May 9, also came at a time when HiteÆs share price is trading near 12-month lows. The stock has dropped 32% since Carlsberg sold the other half of its stake in early December.

Still, having made its initial investment into Hite back in 1999, the Denmark-based brewery was still sitting on a sizeable capital gain - and it had made no secret of the fact that it desired to exit investments where it doesnÆt have management control.

The offer comprised about 2.52 million shares, which were sold at a price of W88,000 apiece for a total deal size of W222 billion ($235 million). The price, which predictably was fixed at the bottom end of the indicated range, marked a discount of 7.9% versus yesterdayÆs close of W95,600.

The shares were initially offered to investors in a range between W88,000 and W92,000, which was equal to a 3.8% to 7.9% discount.

Lehman Brothers was the sole placing agent for the deal. The US investment bank, which is trying to beef up its capital markets business in the region - to match its substantial presence within derivatives and structured products - also arranged CarlsbergÆs previous sell-down in December last year.

Given the market conditions, the deal was never going to be a blow-out, but people familiar with the offering said that it had been successfully covered and distributed and that Leman Brothers hadnÆt been left with any syndicate position. However, talk in the market last night suggested some of the shares may have been placed with other entities of the bank.

The demand was said to have been predominantly Asian and made up of mainly long-only funds. London-based investors also participated, while demand out of the US, where the shares were offered through a private placement only, was more scarce. The order book was said to contain ôdozensö of names.

The total proceeds from this sale were significantly below the around $300 million it raised from the sale of an 11.9% stake in December last year. At that time the shares were sold at W142,000 apiece, which marked a 4.1% discount to the market price.

While the share price has retreated a lot since then and the markets are obviously not ideal at the moment, one observer notes that there is nothing to say that the slide wonÆt continue over the next few weeks and since Carlsberg had made its mind up to sell there was little point waiting.

ôFirst and foremost, our aim is for our investments to be wholly-owned or majority-owned and we have made a commitment to free up invested capital in companies where we donÆt have majority control or where there is no clear path to achieve such control,ö Carlsberg spokesman Jens Peter Skaarup says.

The Danish company said in a release it had made a pre-tax gain of approximately 600 million kroner ($101 million) from the sale, or about half of the 1.2 billion kroner it made from the December sell-down.

The company bought an initial 11.9% stake in Hite in May 1999, which it then increased through several more acquisitions until it got to 25%.

The brewer's stock has been in a significant slump since it hit a high of W169,000 on November 25, partly on concerns about the Korean beer market which saw volumes fall by 10% in the first four months of this year. But some analysts now argue that a turnaround is likely based on reports from industry players about an improvement since May.

In a research note issued last week, Credit Suisse analyst Sonia Kim also argued that the value of soju and liquor producer Jinro which a Hite-led consortium bought control of in June last year has yet to show through in Hite's share price.

ôWe think it is not reflected at all, especially considering that (HiteÆs) current share price is at the same level it was at prior to HiteÆs selection as the preferred bidder for Jinro,ö Kim said, noting that the two companies should also be able to reap more synergies from that deal going forward.

According to Kim, who has an outperform on the stock and a target price of W158,000, the catalysts for the share price include improvements in the beer market environment, and improvements in both the beer and soju markets and potential price hikes next year.

ôHite is the countryÆs largest brewer and Koreans arenÆt about to stop drinking any time soon,ö added another observer. ôSo it is a reasonably attractive and reasonably defensive stock and you are able to buy it at valuations not seen for a year.ö
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