SK Telecom trims Posco stake on second attempt

After cancelling a block trade at the end of last month, SK Telecom returns with a bigger deal during the weekend, raising $391 million.
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SK Telecom has been monetising its cross-shareholding in Posco for almost a decade
<div style="text-align: left;"> SK Telecom has been monetising its cross-shareholding in Posco for almost a decade </div>

A little more than a week after it cancelled a previous attempt to trim its stake in Korean steel maker Posco, SK Telecom returned to the capital markets during the weekend with a slightly larger transaction. The sale, which was done as a club deal targeting only a handful of investors, raised a total of W4.38 billion ($391 million).

On September 26, the Korean telecom operator was attempting to raise up to $324 million from the sale of 1 million Posco shares through Citi, Credit Suisse and Morgan Stanley. The deal came to market on a day when Korea’s Kospi index had fallen 0.6% and Posco had lost 1.1% in its third straight day of declines. And when the bookrunners failed to price the deal before the US market opened, they were also faced with a 4.4% drop in Posco’s American depositary receipts (ADRs) during the first 10 minutes of trading.

Later in the evening SK Telecom decided not to proceed with the sale, citing deteriorating global market conditions. It is believed that investors who had initially committed to the deal began to pull their orders when the pricing got delayed, resulting in the collapse of the transaction.

This time things went a lot smoother and the bookrunner took no chances with the market, essentially launching the deal on Saturday night and crossing the shares on the Korea Exchange before the opening yesterday.

Morgan Stanley was the sole bookrunner for this latest deal and, according to a source, it was able to deliver a larger trade of 1.24 million shares at a tighter discount than that attempted last time on the back of a large reverse inquiry. Compared to the previous deal, which was done on a “best effort” basis, this time the transaction was fully underwritten by the US bank.

Because the shares were only offered to a small number of investors, the deal was done at a fixed price of W353,100, which represented a 3.3% discount to Friday’s close of W365,000. However, since the share price had fallen 1.6% since the first deal was pulled, the final price was still below the bottom of the indicated range a week-and-a-half ago.

The first deal, which accounted for about 1.15% of Posco’s outstanding share capital, was marketed at a price between W356,000 and W363,500, which translated into a discount of 2% to 4% versus the latest close of W371,000. That implied a deal size between $318 million and $324 million.

This deal accounted for 1.4% of the company and about half of SK Telecom’s remaining stake in the Korean steelmaker. It will still own about 1.2 million shares, which will be locked up for 90 days.

Given the small number of accounts, there was no information about what type of investors took part in the weekend sale. It is also not known whether they were international or Korean investors. But given that the transaction was anchored on a reverse inquiry and completed during the weekend, it seems likely that one large investor bought a majority of the shares.

The market responded well to the deal with Posco’s share price holding above the placement price throughout yesterday’s session. It finished down 1.9% at W358,000, which was 1.4% above SK Telecom’s selling price. Asian markets were mostly lower after the World Bank revised down its 2012 forecast for economic growth in developing East Asia to 7.2% from 7.6%. It also lowered its growth estimate for China to 7.7% in 2012 and 8.1% in 2013. Korea’s benchmark Kospi index fell 0.7%.

Like many other companies in Korea, SK Telecom and Posco have a cross-shareholding. However, since 2003 Posco has been monetising the bulk of its holdings in the telecom operator through yen-denominated bonds that are exchangeable into SK Telecom ADRs, and which it has been rolling over at maturity. The steelmaker currently owns just over 2% of SK Telecom, excluding the shares underlying the exchangeable bonds.

¬ Haymarket Media Limited. All rights reserved.
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