Size: $364 million
Bookrunner: JPMorgan
Date: February 16 2005
Kumho Tire’s $364 million simultaneous dual listing in London and Seoul is the first transaction of its kind for a Korean company. It is also the largest IPO by a Korean company anywhere since July 2004.
The deal is a big success for the London Stock Exchange, which has been aggressively trying to attract international companies to list on its market instead of on the New York Stock Exchange. The deal comes just one month after Air China opted for London with a $1.1 billion IPO.
Asian companies have historically preferred a New York listing but the LSE’s efforts to win them over have benefited from the backlash against the US’s Sarbanes-Oxley Act, which requires company executives to personally sign off on the accuracy of their accounts, although the management of Kumho Tire and its parent Kumho Asiana Group did not cite the controversial legislation as a big factor in their decision.
London or New York
“Deciding between New York and London was like trying to decide between two girls you are interested in dating,” explains Sam Koo Park, chairman and CEO of Kumho Asiana Group. “You can only choose one and we saw more advantages for us in London.”
Kumho Tire is part of Kumho Asiana Group, a Korean conglomerate with additional interests in petrochemicals, banking, road transport, aviation, leisure and construction.
Kumho Tire is the 11th-largest tyre manufacturer in the world. Although the group has a 39% market share in Korea, it generates 63% of its revenue internationally. The company cited raising its profile in Europe as the primary reason for its choice of London.
The LSE’s greater flexibility was also a key factor in the company’s listing decision.
Kumho Tire has ambitious expansion plans, particularly in China where it already enjoys the number two position in the passenger vehicle and light truck tyre markets. Kumho Tire plans to use its IPO proceeds to invest in a third production plant in China near the northern city of Tianjin and to increase annual production there to 11 million tyres.
The company needed the money in February in order to get its China plans rolling. Although the LSE was willing to accept the company’s third-quarter results, the NYSE demands full end-of-year accounts, which in the case of Kumho Tire would not have been available until the end of February.
Many ECM bankers argue that dual listings are rarely a good idea as liquidity nearly always ends up remaining in the home market. According to the LSE, however, Korean companies in London enjoy good liquidity. There are 10 listed on the LSE, which trade on the exchange’s International Order Book (IOB) along with another seven Korean depositary receipts. In 2004 turnover in Korean shares on the IOB amounted to $16.6 billion, an 81% increase since 2000. Korea is the second most active country for IOB trading after Russia.
“The dual listing in London was used to ensure that the issuing size was at the optimum level for the company and to create pricing tension,” says Steve Lim, head of investment banking in Korea at JPMorgan.
After an extensive roadshow that involved 60 one-on-one meetings between management and fund managers as well as other events, the company achieved a conversion rate of 60%.
The international portion of the deal, which raised almost $266.52 million, was 3.7 times oversubscribed, and the Korean portion, which raised W99.62 billion ($97.29 million) was over 290 times oversubscribed – the second highest rate of oversubscription for a Korean issue ever.
Daishin Securities acted as the lead underwriter for the Korean offering of common shares.
Cooper Tire, the second-biggest tyre manufacturer in the US, bought an 11% stake in the company during the IPO. Cooper and Kumho have had a strategic relationship for 15 years. The two companies cooperate in five key areas: sales and distribution, production, promotional sponsorships, raw material purchasing and technology sharing.
Kumho Asiana Group and the Korean Military Mutual Aid Association pension fund are the company’s two biggest shareholders.
“We would have liked to have achieved a higher valuation,” says Sae-Chul Oh, president and CEO of Kumho Tire, “but we are pleased that this leaves our new investors with a good chance to make money.”
The deal gives the company a market capitalization of about $1 billion. Kumho tire sold 37,380,000 global depositary receipts and 6,800,000 shares in Korea.
Kumho Asiana Group is now considering the possibility of listing some of its other businesses in London too.
