HYBE sells SM Entertainment shares in block deal

HYBE's headquarters in Seoul, May 10 / Yonhap

HYBE has sold 755,522 shares of SM Entertainment through an after-hours block deal, the agency behind K-pop behemoth BTS said in a disclosure, Tuesday.According to the Financial Supervisory Service, HYBE announced the sale of 755,522 shares, or 25.46 percent of its holdings in SM Entertainment, just before the stock market opened on Tuesday.Managed by Samsung Securities, the disposal price was 90,531 won ($66.63) per share, amounting to a total of 68.3 billion won. This transaction reduced HYBE’s holdings in SM Entertainment to approximately 2.21 million shares.Following the news, SM Entertainment stocks closed at 90,700 won, a 5.32 percent decrease compared to the previous trading day.HYBE initially held around 2.96 million shares of SM Entertainment, which is a minority stake of 12.45 percent, meaning that they do not control management rights.Last February, HYBE acquired 14.8 percent of shares from SM Entertainment founder Lee Soo-man at 120,000 won per share amid the battle with Kakao over SM’s management rights. As the dispute continued, HYBE reduced its holdings to around 8 percent by responding to Kakao’s tender offer, but its holdings again increased to 12.58 percent due to the exercise of a put option on Lee’s remaining shares.

HYBE seems to have decided that it would be better to minimize losses by selling a large portion of these shares, especially given the recent rally of SM Entertainment’s shares. Over the past month, its share price increased by 20 percent, peaking at 100,700 won during Monday’s trading.The recent bullish trend in entertainment stocks has been boosted by expectations of the Chinese government’s easing of restrictions on Korean content. The Chinese government recently allowed a Korean indie band to perform in Beijing in July. The last time a major K-pop band performed in China was in 2015, when YG Entertainment’s BigBang held a concert.Additionally, a summit between Korea and China on Sunday heightened expectations for the normalization of relations as they agreed to create diverse communication channels, including expanding the Free Trade Agreement to cover culture and tourism.”There is likely to be some overhang risk associated with HYBE’s remaining stake in SM Entertainment as some investors have concerns about HYBE selling additional shares in the next several years,” said Douglas Kim, an analyst at Smartkarma, a Singapore-based investment research firm.However, the valuations of SM Entertainment are still attractive, according to Kim.”We believe that SM Entertainment has a more well-diversified line-up of artists and bands relative to other companies that are more reliant on one or two bands for their business. SM has been outperforming other major competitors this year, and we expect 추천 this outperformance to continue this year,” Kim added.

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