South Korea’s market for initial public offerings is on track for its biggest year since 2017 as a strong recovery in stock prices after the coronavirus pandemic fuels investor enthusiasm for new listings.
A total of 67 South Korean companies have raised about Won2.8tn ($2.4bn) this year, up 22 per cent from the same period last year, according to data from the Korea Exchange. That is the highest since companies raised Won8tn three years ago.
That does not include the blockbuster listing of Big Hit Entertainment, which is going public next month after raising $820m in a deal that values the group behind K-pop superstars BTS at $4.1bn.
“We are seeing soaring investor interest in IPOs as the local stock market has staged a V-shaped recovery despite sluggish corporate earnings,” said Hwang Se-woon, an analyst at Korea Capital Market Institute. “Companies are advancing their IPO plans to take advantage of high valuations.”
South Korea’s equity market, Asia’s fifth-biggest by capitalisation, has surged some 60 per cent from its March low. The country’s retail investors are known for an appetite for risky products. In an environment of ultra-low interest rates and abundant liquidity thanks to record government stimulus measures in response to the pandemic, mom-and-pop investors have snapped up stocks in search of better returns.
There have been a flurry of IPOs since July involving 39 companies, starting with SK Biopharmaceuticals raising $794m in July. That was followed by the $323m offering of Kakao Games, the gaming unit of South Korea’s leading messaging app Kakao, which smashed local records for demand by attracting orders for about 1,500 times the stock available.
Big Hit’s IPO — the country’s biggest in three years — was priced at the top end of the marketed range this week, with institutional investors oversubscribing by more than 1,000 times the shares allocated to them.
Retail interest is expected to be similarly fervent, with legions of BTS fans, nicknamed the “Army”, expected to buy Bit Hit shares in a show of loyalty. Some analysts predict gross bids from retail investors could reach Won60tn.
Retail investor subscriptions are due on October 5 and 6, and the shares will start trading on October 15.
This year’s big listings have been dominated by biopharmaceuticals, gaming and entertainment stocks.
Their popularity highlights a broader migration in the South Korean market away from traditional hardware manufacturers producing computer chips, ships and cars, to so-called content creators — a shift accelerated by a surge in the amount of time people are spending online amid lockdowns and social distancing.
Analysts expect the trend to extend into next year, when higher growth internet and gaming companies including internet-only bank Kakao Bank, mobile content distributor Kakaopage and Krafton, the gaming company behind global hit Battlegrounds, plan to go public.
LG Chem is also planning to spin off its fast-growing electric vehicle battery business — the world’s largest — and list the new company in the second half of 2021.
However, Na Seung-doo, an analyst at SK Securities, cautioned against over-exuberance, noting uncertainty surrounding next month’s US presidential election and persistent economic anxiety as coronavirus infections resurge in many parts of the world.
Mr Na also raised concern over the high valuation of Big Hit, which is likely to be the last big deal of this year. “The company’s value seems to be overestimated. I doubt if the stock’s rally will continue after the listing,” he said.
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