Woori exits Posco through $410 million placement

Follow-through buying pushes the Korean steel maker 2.9% higher in the wake of the transaction, which came at a 3% discount.

Woori Finance Holdings on Wednesday sold its entire 1.1% stake in Korean steel maker Posco through a placement, cashing in W468.6 billion ($410 million). Woori, which is the largest financial holding company in Korea and the owner of Woori Bank, didn't specify the reasons for the sale or what it plans to do with the money, but given how close we are to year-end it isn't too far-fetched to assume that it is just taking the opportunity to secure some profit while tidying up its portfolio.

Posco's share price has had a strong run this year -- at the time of Wednesday's transaction it was up 83% from its lows in March and less than 5% below the 18-month high of W582,000 that it reached a week earlier. And the sell-down did little to change the positive view with the stock advancing another 2.9% to W570,000 yesterday.

The investor confidence was likely supported by the fact that the placement came at a tight discount (3%) versus Wednesday's close. But there was also follow-through demand from investors who didn't get as many shares as they may have hoped in the well-received placement, which saw Woori sell 872,000 shares at a price of W537,380 apiece. The shares were marketed at a discount ranging from 1% to 3%.

According to a source, the Morgan Stanley-led deal attracted more than 50 investors and was fully covered within one hour even though it didn't launch until after 6pm Hong Kong time, by which time it was already 7pm in Korea. More than half the demand came from international accounts, comprising both long-only investors and hedge funds. The rest came primarily from domestic asset managers.

Posco is a large-cap stock with a market capitalisation of more than $41 billion and it is very liquid, as evidenced by the fact that Wednesday's $410 million placement accounted for only three to four trading days. This means that investors shouldn't have much problem buying the shares in the market. Still, if they are already buying this name in the market and suddenly get the chance to pick up some more at a 3% discount, then obviously that will be attractive.

One banker noted that, contrary to earlier suggestions, the average investor hasn't closed his books early this year and is still chasing good deals.

"There is still a lot of liquidity around and people continue to stay engaged and look for ways to make money," he said.

And, if the street is right, there is still a bit of upside potential left in Posco. Of the 35 analysts who cover the stock, according to Bloomberg, 33 have a "buy" on it, while two of them recommend investors to "hold". The average target price is about W624,389, although several analysts have targets between W650,000 and W700,000, which implies a potential gain of up to 20%. 

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