South Korea ECM: Block the public’s view
Doosan Group exited from Korea Aerospace Industries this month via a block, which in a move away from traditional sell-downs in Asia, was executed as a private placement. Privately placed blocks appear to be emerging as a new solution for deals during tough times — and it’s an approach that other South Korean vendors should replicate.
South Korean ECM is off to a solid start with four accelerated blocks pricing since the start of the year to raise a collective W823bn ($682m). All were secondary sales, but two transactions stood out. Jabez Private Equity Fund 1 offloaded the remainder of its holdings in Hyundai Securities via a club-style deal, while Doosan Group opted for a pure private placement approach with its sell-down in Korea Aerospace.
Both were sealed successfully and with markets likely to be choppy for some time it makes sense for others to follow.
There are plenty of plus points. For a start, by keeping things behind the scenes and negotiating with a just a few investors, a vendor can sell its shares quickly and often at a higher price than a more traditional transaction allows.
In addition, by using a private placement approach, a seller can ensure it has enough demand to cover its transaction in advance, so if an agreement cannot be reached, both parties can just walk away. There is little risk of having to pull a deal once bookbuilding opens, or equally bad, trim the size of a transaction. This was the result of Hanwha Techwin’s sell-down in Korea Aerospace — the first block out the doors this year. The selling banks were forced to take a knife to the publicly sold deal.
But with a deal negotiated in private, markets will be none the wiser, making it a win-win for both the seller and the underlying stock.
Plus, if expectations are right then Korea will have a busy blocks market over the next few months as Korea’s Fair Trade Commission is pressuring the country’s conglomerates to dilute cross-shareholdings in their subsidiaries and has set individual deadlines for the sell-downs.
With companies including those from the Samsung Group expected out in the market soon, an approach to blocks that makes sure the deal is in the bag will be absolutely critical, especially amid the volatility. With one bad deal usually enough to roil the rest of the ECM, a private placement will be a far safer alternative.