S.Korea's POSCO Eng plans $1.1 bln Seoul IPO

South Korea's POSCO Engineering & Construction said on Thursday it planned a share sale worth a potential 1.2 trillion won ($1.1 billion), which may become the country's biggest initial public offering in two years.

The construction company, which is 89.5 percent owned by the world's fourth-largest steel maker POSCO (005490.KS: Quote, Profile, Research), set an indicative price range for the sale at 95,000 won and 123,500 won a share, valuing the total share offering at between 898.7 billion won and 1.17 trillion.

POSCO Engineering plans to issue 4.73 million new shares and its top shareholder POSCO will sell another 4.73 million existing shares, lowering its stake to 63.7 percent.

"An IPO price of around 100,000 won seems suitable, but the upper 120,000 seems a bit high," Kim Suk-joon, an analyst at SK Securities said.

"POSCO E&G relies fairly heavily on the domestic market..., which is currently undergoing a tough time, with raw material price hikes and stringent property policies."

The share sale, which will value POSCO Engineering at up to 4.3 trillion won, will give the construction firm firepower to expand overseas investment, especially in the booming energy industry in the oil-money rich Middle East.

South Korean construction firms, global frontrunners in building refining and petrochemical facilities, have been active seeking overseas projects, as the domestic housing market cools in the face of weakening private consumption and investments.

The share sale will also strengthen the bottom line of POSCO as it ponders a bid for Daewoo Shipbuilding and Marine (042660.KS: Quote, Profile, Research) later this year, which analysts estimate will be worth $3.6 billion.

POSCO Engineering expects the share sale to be completed in the second half. It plans to sell 30 percent of the offering to foreign investors and picked Merrill Lynch and Daewoo Securities as lead managers.

"Now is not the best time for an IPO. It would be better for the company to wait until the second half, or at least until the construction market hits bottom," Kim at SK said.

The indicative price range suggests POSCO Engineering shares would be valued at between 16 and 21 times 2007 earnings, a premium to its peer GS Engineering & Construction's (006360.KS: Quote, Profile, Research) 15 times but in line with Doosan Construction's (011160.KS: Quote, Profile, Research) 14.5.

Founded in 1994 as the combined entity of POSCO's construction and development units, POSCO Engineering also serves POSCO's steel plant construction at home and abroad.

It earned 206 billion won in net profit last year on 3.5 trillion won revenue. The share sale will be the country's biggest offering since Lotte Shopping (023530.KS: Quote, Profile, Research) went public in February 2006 with a 3.4 trillion won offering. (Reporting by Miyoung Kim, Additional reporting by Park Jung-youn; Editing by Keiron Henderson)