Temasek to Sell 1.2 Trillion Won Worth of Shares of Celltrion through Block Deal

Ion Investments, which is controlled by Temasek Holdings, a sovereign wealth fund of the Government of Singapore, is selling part of its stake in South Korean pharmaceutical company Celltrion and distributor Celltrion Healthcare in a block deal worth 1.2 trillion won (US$1.12 billion).

According to industry sources on March 6, Temasek began a survey on block deal demand by institutional investors on 2.24 million shares in Celltrion, or 1.79 percent, and 2.9 million shares in Celltrion Healthcare, or 2.1 percent, right after the stock market closed on the same day through its wholly owned subsidiary, Ion Investments. The purpose of the block deal is to retrieve the investment and the sale is solely managed by Citigroup.

When the block deal comes through, Temasek’s stakes in Celltrion and Celltrion Healthcare will go down to 12.48 percent and 10.48 percent, respectively. Temasek is to be the second largest shareholder of Celltrion and the third largest shareholder of Celltrion Healthcare. The company is expected to maintain its influence as a major shareholder after the block deal.

Temasek acquired 12.23 million common shares of Celltrion for 207.9 billion won (US$194.12 million), or 17,000 won (US$16) per share, in May 2010. It also bought 17 billion won (US$15.87 million) worth of Celltrion Healthcare’s redeemable convertible preference shares in August 2011. Temasek made 20 times higher profits through the investment in Celltrion.

Ion plans to sell 828.8 billion won (US$773.86 million) worth of shares in Celltrion for 370,000 won (US$345) each and 346.2 billion won (US$323.25 million) in Celltrion Healthcare for 119,400 won (US$111) based on the closing prices on March 6.

This block deal is six times higher than 131.7 billion won (US$122.97 million) worth of the block deal of Celltrion last year. The size of block deal significantly grew because its major shareholder started selling its stake in earnest and the price of Celltrion shares surged from some 200,000 won (US$187) at the end of last year to 390,000 won (US$364).

However, the problem is stock prices. When a company pushes ahead with a block deal, its stock prices have often shown a downward trend. In particular, the discount rate of this block deal was set higher than 5 percent of industry practices. Between 6 and 9 percent of sale discount rates for Celltrion and Celltrion Healthcare shares each were applied compared to the closing prices on the same day. The figures are more than two times higher than 3.9 percent of discount rates that were applied to the block deal by Lee Hae-jin, the founder of South Korean internet giant Naver, on February 28.

The price of Celltrion shares hit a record high at 392,000 won (US$366) on the 5th and then went down to 370,000 won (US$345). The price of Celltrion Healthcare shares also fell to some 110,000 won (US$103) after reaching the highest at 164,000 won (US$153) since the IPO in January.

Some believes that Celltrion’s block deal can come after Temasek. In this case, the overhand issue will adversely affect the price of stocks. An official from the securities industry said, “The overhang issue can be addressed when there is only one block deal. For Celltrion, however, the surge in its stock prices can make investors sell shares for profit gains. It can lead to the investment sentiment to wait and see the process of management before addressing the overhand issue.”

Meanwhile, Celltrion posted 522 billion won (US$487.39 million) in consolidated operating profit last year, up a whopping 109.06 percent from a year earlier. The company’s sales also increased 41.53 percent to 949.1 billion won (US$886.18 million). Celltrion Healthcare saw its consolidated operating profits fall 3.3 percent on-year to 153.87 billion won (US$143.66 million) over the same period, while its sales rose 25 percent to 921.13 billion won (US$860.06 million).