Doosan Bobcat IPO: look before you leap
Doosan Bobcat and its IPO advisers were left red-faced after the company was forced to pull its W2.4tr ($2.2bn) float in South Korea last week. The deal is making a quick comeback and the leads have done what they can to turn the situation around. But the incident serves as an object lesson in how not to do an IPO.
On September 26, Doosan Infracore Co, Doosan Engine Co and a group of private equity funds sought to sell down their stake in Bobcat via the IPO, pitching the shares at W41,000-W50,000 apiece.
But with the pricing considered too tight, investors were having none of it. They figured out early on that the valuations were so rich because parent Doosan Infracore was in need of cash to fix its looming financial issues, and because pre-IPO investors wanted to make a profit.
That the selling shareholders had their own motivations is of course an important consideration in setting the price range for any deal, but in this case, it appears to have overwhelmed the price discovery process.
It would be disingenuous to claim that there was no misreading of the market when a deal launches at W41,000-W50,000 a share, only to get cut down to W35,000, before being revised again to W29,000-W33,000 apiece.
There is ample time in any IPO for banks and issuers to not only market a trade extensively, but also get a proper read of demand.
If the gap between the issuer and investors’ expectations is too large, then the right advice would have been to hold off on a listing. That did not happen here, as Bobcat went ahead with a W41,000-W50,000 price range — only for average bids to come in at a little over W30,000 a share.
It was not just pricing that hampered the transaction. The fact that local and international banks were seen to have delivered mixed messages was also something which could have been avoided.
According to market watchers, bookbuilding was muddled when the local bookrunners encouraged Korean funds to submit bids at their desired price rather than go with the indicative range.
In addition, the leads have been criticised by those away from the deal for poor communication. They supposedly told investors at the start that everything was going well, only to slash price guidance by a whopping 15% below the floor of the initial range — and with two days left for bookbuilding.
All the leads declined to comment on the listing last week. Bobcat was not available for comment.
It is well known that communication between local and foreign banks in Korea can be testy at the best of times, but when the stakes are this high, there should have been no room for error.
With Korean equity capital markets volumes going through a soft patch this year and Hotel Lotte Co shelved, success for Bobcat would have set the right tone for large IPOs.
Moreover, a more transparent account of the book would have primed investors for what to expect, instead of creating mistrust. No one likes surprises, especially negative ones.
The onus is now on Bobcat to salvage the trade, which it has been in haste to do. The company refiled last Friday for a W990.9bn IPO offering a more realistic price range of W29,000-W33,000.
Whether the fundraising will get across the line will become evident when bookbuilding kicks off again on November 3. But the damage has been done, and all Bobcat can hope for is that investors' can banish the memory of a deal gone wrong.