Samsung SDS began bookbuilding on Monday for an initial public offering that could net the South Korean provider of technology services up to $1.1 billion.
Some 6.09 million shares will be on offer between W150,000 and W190,000 per unit, according to a source close to the deal. Roughly 3.6 million shares will be made available to both domestic and international institutions, while the remainder will go towards the retail tranche and an employee share buyback programme.
All of the shares are secondary, with Samsung Electro-Mechanics selling off all 6.09 million of the shares. The shares represent 7.88% of enlarged share capital, the source said. The pricing is scheduled for October 31 and the listing will be on November 17.
Goldman Sachs and Korea Investment & Securities are joint lead managers. JP Morgan is also helping arrange the sale.
The listing of Samsung SDS, which provides technology for the construction and manufacturing industries, is the latest step in allowing Lee Jae Yong, heir apparent at Korea's largest business group, restructure the Samsung Group after his 72-year-old father was hospitalised in May.
Timing
The timing is not ideal. Equity markets have been plunging around the world, and since Alibaba floated its shares in a record-breaking IPO, many IPOs and blocks have performed abysmally in the aftermarket.
Still, a second source close to the Samsung SDS deal noted that Korea is a unique market. “You do have a captive audience in Korea [and SDS] is a good stock out of the Samsung stable," the source told FinanceAsia. "Sixty percent of the deal will go to institutions and we expect the domestic uptake will be very strong."
The W150,000 and W190,000 per unit range puts Samsung SDS’s valuation at 20.3 to 25.8 times its 2015 earnings, and on an Ebidta basis, at 8.2 to 10.7 times.
This is a slight premium to one of its comps, Posco ICT, which is trading at 16 times 2015 earnings, but in line with another peer, IT services firm SK C&C, which is currently trading at 22.4 times its 2015 earnings.
SK C&C has had an impressive year so far performance wise — it is up 88% up to October 21. Posco ICT on the other hand has had a rockier year. It rose 13% from the start of the year up to September 12, but has since retreated and has fallen 12% in the last few weeks, following the global slowdown in equities.
Business structure
Samsung Group has a diverse range of businesses spanning televisions and smartphones to insurance and construction. It is in the process of merging its shipbuilding and engineering affiliates.
In order to take control of Samsung Group, Lee's three heirs reportedly face inheritance taxes that could exceed $5 billion of their father's $11.2 billion fortune. The Samsung SDS IPO may help Lee pay down the inheritance tax on assets passed on by his father.
Samsung Heavy Industries, one of the world's largest ship-makers, and Samsung Engineering announced they will merge before the end of the year in a deal valued at about W2.5 trillion.
