Investors rush to buy SOCAR shares after tender offer announcement drives 23% surge

There has been a case where the stock price surged following the announcement that the largest shareholder would buy less than 1% of the issued shares. The amount of shares they intend to purchase is so small that there is little chance that general shareholders could have their applications accepted, yet the price rose simply because it was a tender offer.

Analysts speculate that the tender offer by Young Poong and MBK Partners, which quickly drove Korea Zinc's stock price to 2 million won last year, has instilled vague expectations among investors. Financial authorities warned that tender offers have different characteristics compared to regular market transactions, and investors should fully understand these differences before deciding whether to invest.

The stock price of SOCAR soared during trading by 23.15% (from 14,210 won to 17,500 won) after the largest shareholder, S.O.Q.R.I., announced on the 14th that they would conduct a tender offer. The increase was due to the tender offer price being set higher than the current stock price at 17,500 won. S.O.Q.R.I. is a company that holds 100% equity owned by former SOCAR CEO Lee Jae-woong and his spouse, Hwang Hyun-jung.

Examining the tender offer announcement, there was insufficient justification for the rise in stock price. S.O.Q.R.I. stated that the purpose of the tender offer is to enhance responsible management, yet the volume of shares being offered is only 0.52% (171,429 shares) of the issued SOCAR stock. Even if S.O.Q.R.I. succeeds in the tender offer, their equity will only rise slightly from 19.2% to 19.72%.

There have been suspicions in the market that Lee's decision to carry out a tender offer, albeit on a small scale, was to avoid a margin call on a 35 billion won stock collateral loan from Jeju Bank, Pureun Mutual Savings Bank, and IBK Capital received last year. Because the stocks are collateral, if the stock price falls below a certain level, the financial institutions that lent the money would request additional funds from Lee, which led to the tender offer being pushed forward to prevent such a situation.

However, this scenario appears plausible only because it understands the outcome of the stock price increase. It implies that investors expected the stock price to rise due to the small-scale tender offer. SOCAR also denied the suspicions. A SOCAR official noted, "If boosting the stock price had been the goal, we would have bought shares on the stock market."

There have been previous cases of small-scale tender offers similar to this one. However, there was no overheated stock price movement like SOCAR's. In September 2022, Hanwha Solutions conducted a tender offer to provide existing shareholders an opportunity to sell, separating from Hanwha Galleria and Hanwha Advanced Materials. The target volumes were 0.71% of common stock and 0.01% of preferred stock.

The tender offer price (for common stock) was 2.62% higher than the day before the tender offer announcement and 1.37% lower than the weighted average price over the past month. Even considering that the tender offer was not as appealing as SOCAR's, the stock price of Hanwha Solutions showed little significant movement. During the 14 trading days of the tender offer, the tender offer price (51,000 won) was only surpassed on one day. The stock price remained in the high 40,000 won range.

Compared to tender offer announcements of similar scale, SOCAR's stock price surge is unusual. The most recent company to announce the acquisition of 3 billion won in treasury stock was Korea Alcohol Industrial, a manufacturer of soju and industrial ethanol. The day after the announcement, on the 12th of this month, the company's stock price rose only by 3.86%.

The term tender offer has become familiar to individual investors in the domestic stock market since the management dispute at Korea Zinc began in September last year. At that time, Young Poong, the largest shareholder of Korea Zinc, launched a tender offer in partnership with MBK to take management control from Chairman Choi Yoon-beom.

The tender offer price, which was 660,000 won, rose to 890,000 won as both sides announced their tender offers to counter each other. After the tender offer ended, as neither Young Poong, MBK, nor Chairman Choi had a clear advantage, Korea Zinc's stock price soared to 2.4 million won ahead of the temporary shareholders' meeting at the end of last year.

The tender offers by Young Poong and MBK occurred between those by SOCAR and Hanwha Solutions. Individual investors, having observed Korea Zinc's stock price surge over the months, might have harbored vague expectations from the tender offer announcement by SOCAR.

The Financial Supervisory Service cautioned, "If the total number of shares that investors applied for exceeds the maximum proposed purchase quantity by the tender offeror, investors cannot sell all the shares they applied for," adding that "the tender offeror can only purchase proportionally to the target quantity."