E-Malt.com News article: South Korea: Jinro’s shareholders cut IPO price

Hite Brewery and other shareholders in Jinro will cut the South Korean liquor firm's IPO price by a quarter and treble the stake on offer as more investors seek to exit a company hit by falling profits, Reuters reported March 9.

According to two sources familiar with the proposal, the original plan to issue 5 million new shares at 95,000 won each has been revised. An extra 10 million existing shares have now been added to the pot, while the sale price has been slashed to 70,000 won per share.

The new proposal would value Jinro at about 3.4 trillion won ($3.6 billion) -- about the same as Hite and its partners paid creditors for the then-bankrupt business in 2005. The sale will put about 31.2 percent of Jinro's 48 million shares on the block for a total of 1.05 trillion won.

The IPO, now slated for 2008, will bring to market the maker of soju "chamjinisulro", which accounts for about half of South Korea's white spirits consumption.

Morgan Stanley Emerging Markets Inc. (MS.N: Quote, Profile, Research), which bought a 10 percent stake from Hite for 250 billion won in September 2005, now also plans to exit through the IPO. The bank will raise about 309 billion won if its sells its entire stake -- a return of more than 20 percent.

"Morgan Stanley, seeking to cash out as soon as possible, has managed to persuade Hite to boost the Jinro IPO size," one source said.

Fierce competition more than halved 2006 earnings for Jinro, whose mainstay product "soju" controls half of South Korea's $2 billion market for the traditional local liquor.

Hite will finalise the IPO size and the pricing band around September, file a listing application in January 2008 and list as early as the first half of next year, the sources said.

Hite owns 41.85 percent of Jinro, while the Korea Teachers' Credit Union and the Military Aid Association hold 20.95 percent and 16.43 percent, respectively. Morgan Stanley is the next largest shareholder.

Shares in Hite closed down 0.93 percent at 107,000 won, against a flat wider market. Hite has yet to decide whether to go for a Seoul-London dual listing or allocate a certain portion of shares to foreign investors in a Seoul-only offering, the sources said.

Jinro, which was delisted from South Korea's KOSPI in 2003 following bankruptcy, was sold to the Hite consortium for $3.4 billion in 2005 by Goldman Sachs-led creditors.

Hite delayed the IPO from 2007 after rival Doosan's new soju line-up Grabbed a 20 percent market share.

Jinro had a 512.3 billion won ($541.3 million) net profit in 2005 partly due to tax-related gains, earned only a 117.3 billion won profit in the first nine months of 2006.

"Earnings will improve this year, as a marketing war shows signs of tapering off and Jinro will likely focus on profits ahead of its listing next year," said Na Hong-suk, an analyst at Goodmorning Shinhan Securities.

Based on analysts' estimates that Jinro will have a 2006 net profit of 200 billion won, the revised IPO price would value the firm at 17 times earnings, compared to the sector average of 14.

Samsung Securities (016360.KS: Quote, Profile, Research), Woori Investment & Securities and Daishin Securities are joint underwriters. ($1=946.3 Won)


14 March, 2007