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Wednesday, 14 November 2018

Equity Issue

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Despite timing its float around the US presidential elections, having virtually no comparables, and coming after some high-profile local stumbles, Samsung Biologics still came closer than any other Asian issuer to a textbook IPO.

The W2.2trn (US$2bn) Korea Exchange IPO priced at the top of the indicative range after covering the institutional book multiple times over. It attracted a broad base of investors, and also traded well – no small feat given that Donald Trump’s shock election victory came after pricing and before the shares started trading.

The listing of the biopharmaceuticals unit of South Korea’s biggest conglomerate was the world’s largest healthcare IPO since July 2014 and South Korea’s largest since Samsung Life went public in April 2010.

Perhaps most importantly, it helped restore faith in the IPO product in a dismal year for major Asian listings.

While biopharma is a sought-after sector, valuing the company was one of the toughest challenges for arrangers due to the absence of any obvious comparables.

Rather than a direct comparison, bankers instead relied on a dual-track method involving discounted cashflow models and two relevant comparables. Switzerland’s Lonza offered a comparison to Biologics’ contract manufacturing operations, and Korea’s Celltrion was pinpointed as the closest reference for its biosimilars operations.

The IPO, involving 25% of the company or 16.5m shares, priced off an indicative range of W113,000–W136,000. The global roadshow covered around 400 investors and the final book contained a good mix of quality long-only investors, along with sovereign wealth and hedge funds.

The first day of trading on November 9 was a nervy affair, coming a day after Trump’s win had injected high levels of uncertainty into the markets. But following a small dip, the shares jumped to W146,000 by the end of the trading day, well above the W136,000 IPO price. As of the middle of November, the shares had climbed up to around W168,000 each, extending a strong early run for the stock and showing the value of a diverse and engaged shareholder roster.

Despite some setbacks, the South Korean market proved to be one of the bright spots in the region’s equity capital markets, with a steady flow of business in blocks and listings. The Biologics listing compared favourably to large listings in other markets such as Hong Kong, where large syndicates and the proliferation of oversized cornerstone tranches have dampened liquidity and distorted pricing.

Citigroup, Credit Suisse and JP Morgan arranged the international portion of the IPO, while NH Investment and Securities and KIS handled the domestic side.

To see the digital version of this report, please click here

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