South Korea equity issue

IFR Asia Awards 2014
3 min read
Frances Yoon

South Korea’s equity capital markets started 2014 in poor shape. Prospects for new listings had become so bad, in fact, that the country’s regulators felt it necessary to step in to make it easier and faster to launch deals.

Samsung SDS changed all that. Not only was the IT services provider’s W1.16trn (US$1.1bn) global offering easily Korea’s largest IPO of the year, but its massively oversubscribed order book also single-handedly reignited the country’s new issue market, making it the most important equity issue of 2014.

Bankers had a big responsibility to get the deal right. For its scale alone, the Samsung conglomerate is one of the most important banking clients in South Korea, but the chaebol’s plans to restructure its ownership and list a number of other units gave the SDS float an even greater significance.

“It was important to do it right because this IPO paves the way and sets the tone for Samsung Group transactions to come,” said David Chung, co-head of Korea investment banking at Goldman Sachs.

“If it traded poorly it would have had a real tangible impact on the deals that followed.”

In the end, the weight of demand for a rare equity offering from the Samsung network left the deal flooded with orders, and the stock’s performance lifted the mood across the equity markets. Although the leads were able to catch investors’ attention for the household name, their expertise in framing the company’s equity story was going to be key to securing the right valuation.

In a series of comprehensive research meetings, Goldman Sachs, JP Morgan and Korea Investment & Securities highlighted the potential for growth in the company’s BPO business, as well as delivering SDS’s key position within the Samsung Group.

The message worked. Of the 49 one-on-one meetings, 80% of the attendees signed up to buy SDS shares even though the P/E ratios that the W150,000–W190,000 price range reflected was higher than those for its domestic and international comparables.

“Getting this kind of premium is only possible because the talented management and the solid fundamental drivers of the business are what will allow it to grow over time,” said Chung.

The deal priced on October 31 at W190,000, at the top end of the indicative range, after SDS amassed an order book that was 651 times oversubscribed across the domestic and international tranches.

The shares soared 72% on their November 14 trading debut, setting the tone for more IPOs to come, including Samsung’s de facto holding company, Cheil Industries, which began marketing only two weeks later. It also paved the way for equity offerings beyond the group, with other high-profile listings from the likes of Hyundai Innocean on the cards for 2015.

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