Daewoo capital increase drags shares

Daewoo Securities’ plan for a capital increase is feared to dent its share price as the move is unlikely to do much to boost earnings and competitiveness, analysts said yesterday, downgrading their price targets.

Daewoo Securities, Korea’s No. 2 brokerage by market cap, said Wednesday it will raise 1.4 trillion won ($1.3 billion) through a rights offering as part of its efforts to become a global investment bank.

The plan came after the financial regulator revealed a spate of policies in July in a bid to help grow local investment banks and spur hedge funds. The regulator had set a minimum limit of 3 trillion won for securities firms wishing to become investment banks.

Analysts said the move is likely to help Daewoo Securities, with an equity capital of 2.7 trillion won, get an upper hand over its rivals. But they cautioned that the bigger-than-expected capital increase may strain share prices.

“With a new capital injection, Daewoo Securities will likely become the top industry player, which would help it step up cooperation with Korea Development Bank on investment banking,” said Chandler Kang, an analyst at Daishin Securities Co.

Daewoo Securities is an affiliate of state-run financial group KDB Financial Group Inc., whose flagship is Korea Development Bank.

“But in the short term, the negative impact will outweigh the positive. The amount of new profit created by the move is unlikely to be large and capital size doesn’t translate to absolute competitiveness,” he said, cutting the six-month price target on the company by 57.7 percent to 11,000 won.

Others agreed that it would be too hasty to project rosy results from the capital increase.

“It’s still too early to estimate how the investment bank business will contribute to improving profit,” said Kim Ji-hyun of HI Investment & Securities Co., lowering the six-month price target by 51 percent to 13,000 won.

Shares of Daewoo Securities plunged by the daily limit of 14.91 percent to close at 11,700 won on the main Seoul bourse.

Shares of major securities firms also took a blow as investors dumped them on concerns the brokerages may move to conduct a capital increase in a bid to satisfy the 3 trillion won limit.

Another state-owned firm, Woori Investment & Securities Co., dropped by the daily limit as well to 11,100 won, while Samsung Securities Co., the largest brokerage by market cap, tumbled 5.93 percent to 55,500 won.

Some market watchers, however, said there are slim chances of brokerages pushing to carry out capital increases.

“Securities companies are unlikely to push for capital increases mainly because their major shareholders seem to have no financial wiggle room to subscribe to rights offerings,” Seo Young-soo, an analyst at Kiwoom Securities Co., said in a report.

Yonhap