Samsung Card launches IPO with international tranche

The credit card issuer seeks up to $583 million from the sale with 30% set aside for offshore investors.
The marketing of Samsung CardÆs initial public offering of up to $583 million is now under way and promises to attract a lot of interest from the international investment community. Not only is this the first Korean equity offering of size this year, but it is also the first domestic Korean IPO that has an international tranche.

The international tranche became possible after the announcement of a regulatory change earlier this month and Samsung Card, which had obviously been waiting for the opportunity, made a filing with the Korean regulators to do the deal pretty much immediately.

This means international and domestic investors will be offered the same shares in Korea's third largest credit card issuer and that these will trade in the local market. Under previous practices international investors have really only been able to buy Korean companies through overseas-traded depositary receipts.

ôThere is a real attempt by the Korean regulators and policy makers to transform Korea into a Japanese-style international market. A first step towards that is to have an active local market and to encourage high-quality issuers like the Samsung Group to have all the liquidity and issuance onshore with foreign participation,ö notes one observer.

In this first deal, the international tranche is only 30% of the entire deal size but it should still enable offshore investors to get a ômeaningful positionö at IPO, he adds.

That 30% isnÆt fixed in stone, however, but will be determined partly by price competition in relation to the domestic tranche. Consequently, it can potentially both increase and decrease, although it is generally expected to end up around the 30% mark.

Merrill Lynch is the sole bookrunner for the international tranche, while Korea Investment & Securities is arranging the domestic sale. The latter will be split into three portions for the purpose of allocations, which will result in 20% of the total deal going to retail investors, 20% to the employee share option program and 30% to domestic institutions.

The company is offering 12 million shares at a price between W40,000 and W45,000 each for a total deal size of up to W540 billion ($583 million). The total offering accounts for 11.4% of the company, although only half the shares will be primary shares. The remainder will be sold by the Samsung Group, which currently holds 89.9% of the card issuer through various group companies.

The international roadshow, which kicked off in Hong Kong on Monday, will run for two weeks and will see the management travel to both Europe and the US as well as Singapore. The marketing of the domestic tranche will be slightly shorter, sources say.

Talk leading up to the IPO has focused on the fact that Samsung Card has an outstanding convertible bond issue of $800 million, which is expected to convert and could potentially result in a significant dilution. However, sources close to the offering say the IPO price range has been set to correspond with the W43,040 conversion price of the CBs to minimise this effect.

They also note that most of the CBs are held by retail investors, which means the conversion into equity is highly likely to come in small amounts at a time, ensuring a staggered expansion of the freefloat.

Given that only half of the offering is primary shares, the net proceeds raised by the company will be quite small and it hasnÆt specified the use beyond saying that it will be used for general corporate purposes.

Bankers say they expect other issuers to follow suit and do domestic IPOs with an international tranche rather than dual listings using Global or American Depositary Receipts - if the Samsung Card transaction ends up being successful.

A key reason for this is 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. And if the issuers have to go through the same approval and documentation process as for a domestic listing, they may as well do the domestic listing with an international tranche attached, the bankers argue.

This would also mean that they would avoid the issue of a share flowback to the Korean market. This is a common feature for all Korean DR issues as the stock tends to gravitate towards the most liquid market and the common shares are typically much more actively traded than the GDRs. Under the new rules, international investors too will now be able to hold the most liquid security.

ôThis is the equivalent of A-share issuance in China in the sense that it brings an alternative for issuers and a major change to the way deals are done in Korea,ö the observer says.
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