This article was published on Feb. 4, 2025, at 5:47 p.m. on ChosunBiz MoneyMove website.
After failing to go public in 2023, Seoul Guarantee Insurance is attempting a second offering while significantly lowering its valuation. The company faced controversy over its high valuation during its first offering, but has decided to reduce its valuation by nearly 40% this time. However, the volatility in interest rates due to U.S. President Donald Trump's implementation of comprehensive tariffs on Canada, Mexico, and China is seen as a negative factor.
According to the financial investment industry on the 4th, Seoul Guarantee Insurance has officially launched its offering process with the goal of entering the securities market in early March. Demand forecasting for domestic and foreign institutional investors will be conducted from the 20th to the 26th, after which the final offering price will be set. General subscription for public shares will take place over two business days starting on the 5th of next month.
Seoul Guarantee Insurance has set its hoped offering price range at 26,000 to 31,800 won. During its first offering in October 2023, it had set the range at 39,500 to 51,800 won. The offering amount at that time was between 275.7 billion and 361.6 billion won, which is about 35% to 38% lower compared to the current range of 181.5 billion to 222 billion won. The expected market capitalization after listing has also drastically reduced from 4.5556 trillion won to 3.1431 trillion won.
To lower its valuation, Seoul Guarantee Insurance has drastically adjusted its peer group comparison. Initially, it included Samsung Fire & Marine Insurance, DB Insurance, Coface from France, and Traveler from the U.S., but it has narrowed it down to three domestic insurers: Samsung Fire & Marine Insurance, DB Insurance, and Hyundai Marine & Fire Insurance. It has been pointed out that the high valuation of overseas guarantors has hindered investor persuasion, prompting the company to focus on domestic insurers for comparison.
The valuation for price setting will proceed as before, using the price-to-book ratio (PBR) method. At that time, Coface and Traveler's PBR was 0.97 and 1.68, respectively. Accordingly, despite the lower PBR of Samsung Fire & Marine Insurance (0.67) and DB Insurance (0.48), the final average was determined to be 0.95. However, this time, excluding overseas insurers and including Hyundai Marine & Fire Insurance (0.38), the average PBR has been reduced to 0.61. The discount rate has also been adjusted from 39.60% to 2079% to the current 42.24% to 29.36%, focusing on lowering its valuation.
An industry relationship in securities noted, "The most decisive reason Seoul Guarantee Insurance withdrew its offering was the controversy over high valuation due to its elevated pricing," and explained, "The main focus this time was to present a market-friendly valuation."
The variables for Seoul Guarantee Insurance's offering process are expected to be the U.S. Treasury bond rates. A surge in treasury bond rates diminishes the high dividend appeal of Seoul Guarantee Insurance. The company, which has conducted annual dividends for 13 consecutive years, is also emphasizing its attractiveness as a high-dividend stock during this offering process. In roadshows targeting domestic and foreign institutional investors that began the day before, it is said to be focusing on gathering institutional demand by promising dividends and share buybacks.
The issue is that the yield on the U.S. 10-year government bonds, which serves as a global market interest rate benchmark, is rising due to recent tariff measures imposed by President Trump. The rise in government bond yields is attributed to the speculation that the Trump administration's tariff policies may cause inflation. The day before, President Trump decided to postpone the tariffs on Canada and Mexico for a month, calming the bond yields, but with news of a tariff war with China, the yield spiked to 4.573% during the day. Currently, the yield on the 20-year bonds is at 4.857%, and the 30-year bonds are at 4.797%.
Seoul Guarantee Insurance experienced a similar issue during its first offering, when rapid increases in U.S. Treasury bond rates led to a withdrawal of foreign institutional investors. Given that the tariff exemption measures on Canada and Mexico are temporary, along with the declaration of a tariff imposition on semiconductor, steel, and oil and gas sectors in the European Union, the sense of crisis surrounding the tariff war is likely to persist.
An IB industry relationship stated, "Seoul Guarantee Insurance's dividend payout ratio has been about 50% over the past three years, and based on last year's settlement of accounts, it plans to pay dividends worth 200 billion won," adding, "Since the expected dividend yield based on the target offering price is projected to be around 9% to 11%, unless treasury bond yields spike to 5% like the first offering, there shouldn't be any major issues."