Park Jae-hyuk is a seasoned journalist who has provided comprehensive coverage of South Korea's corporate dynamics, economic policies, industry challenges and the global positioning of Korean companies. Based on the articles he has written since joining The Korea Times in 2016, his investigative approach has helped readers understand corporate governance, economic trends and business strategies shaping South Korea’s economy.
ANALYSIS K Car fails to attract domestic institutional investors
K Car CEO Jung In-kook poses at the company headquarters in Seoul in this file photo. Courtesy of IR Kudos
By Park Jae-hyuk
By Park Jae-hyuk
Hahn & Company's hoped-for earnings from the forthcoming initial public offering (IPO) of K Car has decreased, as the used-car dealership owned by the private equity firm (PEF) cut its offering price, after facing a skeptical outlook.
The possibility of a lower-than-expected profit from the IPO, set for Oct. 13 on the KOSPI, can be viewed as another unfavorable factor for the PEF, which is grappling with slower-than-expected progress in its sale of Hanon Systems and its intensifying legal battle with Namyang Dairy Products Chairman Hong Won-sik.
According to K Car's recent regulatory filing, its offering price was fixed at 25,000 won ($21), 27 percent lower than the bottom end of its desired price range that had been set between 34,300 won and 43,200 won.
The amount of the largest shareholder's stocks to be sold to the public immediately after the IPO also decreased by 20 percent to 12.26 million shares from 15.62 million.
As a result, the market cap of K Car was set at 1.2 trillion won, instead of the previous estimation of 2 trillion won. Hahn & Company has also been unable to sell as many K Car shares as it wanted initially, until a year after its listing.
“Due to consecutive large-scale domestic IPOs, fewer individuals are participating in such deals, and medium-sized asset management companies here are facing a shortage of funds,” said a representative from NH Investment & Securities, the lead underwriter for the K Car IPO. “Considering the market condition, we decided to put up a market-friendly price.”
This was the first time for a company worth over 1 trillion won to lower its offering price due to a negative demand forecast.
In contrast to foreign institutional investors offering higher prices, locals remained conservative, citing recent failures in terms of managing mega-size IPO deals, including the listing of Lotte Rental last month, to attract investors on the domestic stock market.
Even after the demand forecasting, securities analysts expressed a rosy outlook for K Car.
“K Car is expected to post 1.8 trillion won in sales this year and 75 billion won in operating profit,” Yuanta Securities analyst Ahn Joo-won said in a report released Tuesday. “I'm optimistic about its valuation, given that the amount of shares to be sold immediately after its IPO accounts for only 28 percent of the outstanding shares and the company is expected to continue its growth without seasonality.”
Hahn & Company's forthcoming sale of its 12.26 million shares will enable it to earn at least 306.5 billion won, which is larger than the 205 billion won it had paid in 2018 to buy K Car from SK. Its remaining stake will be worth 866 billion won at the IPO price.
However, it is still unclear whether the PEF could achieve its ambitious initial goal of earning up to 670 billion won through the IPO, because the sluggish demand forecasting among institutional investors will have a negative impact on retail investors' subscriptions, which will take place this Thursday and Friday.
Moreover, individuals have remained reluctant about investing in PEF-owned companies to avoid their money being used to profit the PEFs.
Seen is Hanon Systems' factory in Pyeongtaek, Gyeonggi Province. Courtesy of Hanon Systems
Hahn & Company has been recognized for signing dozens of buyout deals without suffering any losses from its portfolio companies.
The procedure for selling its controlling stake in Hanon Systems worth over 8 trillion won, however, is taking longer than expected, due to the COVID-19 pandemic that has made it difficult for potential buyers in other countries to conduct due diligence of the auto parts manufacturer's assets.
Securities analysts initially expected the main bid to take place in September, but a source familiar with this issue said the deal will be finalized next year, following the main bid later this year.
Although the sale procedure gained momentum after Carlyle, Bain Capital, Germany's Mahle, France's Valeo and Japan's Nidec were shortlisted as qualified buyers, the record-high valuation is still mentioned as a variable.
Namyang Dairy Products Chairman Hong Won-sik wipes away tears, during a press conference held May 4 at the company's headquarters in Seoul to make a public apology. Korea Times photo by Ko Young-kwon
Hahn & Company is also embroiled in a legal battle with the Namyang Dairy chairman, who abruptly cancelled the agreement to sell his controlling stake in the dairy firm to the PEF.
After the court accepted the PEF's request to ban him from selling his stake to a third party, the chairman made a claim for a compensation of 31 billion won from the PEF last week, alleging that the defendant is responsible for the disruption of the deal.
Their legal dispute is not expected to end in the near future, so Hahn & Company faces a long road until the final ruling.
Market insiders are also wondering whether or not the Namyang Dairy chairman will accept the request from lawmakers to stand as a witness for the National Assembly audit next month, given that his testimonies and remarks from lawmakers may affect the lawsuit.