SK Corp drops UBS after Incheon dispute

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UBS has been dropped as an adviser to the suspended London listing of Incheon Oil after an 11th-hour disagreement about the refinery’s valuation, according to people familiar with the matter.

The investment bank was hired by SK Corp, the South Korean conglomerate that owns Incheon Oil, to assist Merrill Lynch complete an initial public offering on the London Stock Exchange.

SK Corp wanted to list 30 per cent of Incheon Oil and to raise about $750m in the listing, scheduled for this month. But it recently postponed the offering, citing “market conditions”.

The Financial Times has learned that UBS’s mandate was terminated after the bank insisted to senior management that Incheon Oil should be given a valuation as much as a third lower than SK Corp was seeking.

While differences between executives and advisers are commonplace before an IPO, it is rare for sides to disagree so fundamentally about valuation that a bank is prepared to walk away.

UBS consistently ranks among the top advisers in Asia-Pacific for IPOs. Observers said the row could cast a shadow over SK Corp’s plans to list the company early next year.

Previous UBS research in the country has angered South Korea companies. In May 2002, Jo Dutton, a semi-conductor analyst in Seoul, downgraded his rating of Samsung Electronics, South Korea’s largest company, citing concern about weak chip prices.

The downgrade infuriated Samsung. Soon afterwards South Korea’s securities regulator started a wide-ranging probe into trading conflicts at brokerage houses.

UBS had no comment. SK Corp said it had talked to several banks about running the book for the sale before deciding on Merrill Lynch. It claimed UBS was never selected.

SK Corp said in a regulatory filing two weeks ago it had postponed the London share sale because of the Korean stock market’s “underperformance” and strong appreciation of the Korean won. The won is up nearly 10 per cent this year.

SK Corp bought 91 per cent of the refiner, in the port city of Incheon, near Seoul, a year ago for $1.6bn and $1.4bn in debt.

The London flotation would allow SK Corp to cancel some of the company’s treasuries, consolidating the power of the controlling Chey family.

Analysts say the Incheon refinery is one of Korea’s weakest and needs huge investment and restructuring. With other oil deals in the market, investors did not find the Incheon sale attractive. A banker said: “When Merrill Lynch went on the roadshow alone, people laughed and said: ‘Are you smoking dope?’ ”

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