Deal Reporter
OCI [KRX: 010060] has dispatched information memorandum for the proposed sale of OCI Materials [KOSDAQ: 036490] to multiple domestic and foreign suitors and is preparing to receive preliminary bids by early August, it is understood. Qualified suitors will move ahead with due diligence during August, it was said.
Japan’s Taiyo Nippon Sanso [TYO: 4091] has been in talks for the potential acquisition of OCI Materials, but has not reached a final decision on whether it will move forward with placing a bid, a company spokesperson confirmed. He was responding to a request for comment from this news service following claims from an industry source that the Japanese firm was interested in bidding for the company.
Taiyo Nippon Sanso currently purchases, bottles, and sells industrial gases, including NF3, SiH4, and WF6 from OCI Materials, according to the Taiyo spokesperson. The potential acquisition could allow Taiyo to secure production facilities to enhance its procurement network. However, the spokesperson acknowledged that the industry was mature and that it was unlikely to grow significantly going forward.
Meanwhile, a Chinese bidder is also in discussions to buy OCI Materials, a source familiar with the situation said.
The Chinese bidders could be the most likely suitors, two bankers following the situation and the source familiar said. Chinese companies are generally keen to expand in the semiconductor and display sector as encouraged by the government, the source familiar said, pointing to state-run Tsinghua Unigroup’s reported USD 23bn bid to acquire US-based chipmaker Micron Technology.
Foreign bidders could be attracted to the target’s large production capacity and existing relationships with two major clients Samsung and LG Electronics, said two bankers following the situation. However, the high valuation and cyclical nature of the business could prove to be hurdles, they noted, adding that there could be a price gap.
Shares of OCI Materials shot up 159% this year, valuing the company at KRW 1.46tn (USD 1.23bn). The current high trading multiple, more than four times book value, and uncertainty over global supply and demand in the next few years could be risk factors, the second banker explained.
OCI said on 10 June that it had hired Credit Suisse to sell a controlling 49.1% stake in OCI Materials to focus on its solar energy business. OCI Materials manufactures industrial gases such as NF3, SiH4, and WF6 for the production of semiconductors, LCD panels, and solar batteries. It is the largest producer of NF3 globally.
Air Products Korea, DaeSung Industrial Gases, and Hyosung are competitors in the field of NF3 in Korea, a third banker said.
Total domestic production of NF3 was 17,000 tons in 2014. Hyosung, which focuses on development of specialty gas/materials, is working to upgrade production of NF3 to 3,500 tons from 2,000 tons, according to a May report from IBK Securities.
Hyosung expects to increase production supply of NF3 from 2Q16, while DaeSung is also looking to increase production from next year, which will result in an increase of 3,000 tons of NF3 in total, an analyst at IBK Securities said.
However, the increase in capacity is unlikely to immediately affect OCI Materials’ profitability as Samsung Electronics expects demand to be resilient for a while, the analyst said. Although OCI Materials has a high operating profit ratio of about 30%, and solid earning prospect for FY15, the company is rather overvalued at this moment, the analyst added.
OCI Materials is estimated to record sales of KRW 319bn and operating profits of KRW 99bn this year, 50% and 280% up YoY, according to a June research report from eBest Investment Securities.
Sale proceeds
OCI said this morning that it sold OCI Resources [NYSE:OCIR] to Park Holding AS, a subsidiary of Ciner Group of Istanbul for USD 465m.
The company plans to use the proceeds of the non-core asset sale to invest in solar power plants, ESS (energy storage system), and its chemical materials business, said an OCI spokesperson. OCI has not finalized details of its investment strategy of the ESS and chemical businesses as yet, he said.
With regards to its solar power plant project, OCI has been working for Alamo project in Texas, US; seven solar power plants that require about KRW 1.3tn of investment in total. The company has completed half of the project, and expects to finish it by the end of next year, the spokesperson said. The asset sale is also expected to help to minimize the company’s mounting liabilities, as reported. OCI had an approximate debt to equity ratio of 120% in 1Q15.
Shares of OCI were up 5.56% at KRW 123,500 on Tuesday afternoon.