IPOs dry up during first quarter

Initial public offerings in Korea are coming few and far between as lackluster performances of local companies, coupled with tougher pre-IPO reviews by the nation’s bourse operator, discourage companies from listing.

As a result, a lot of attention is on the companies that get to manage the handful of upcoming, massive IPOs, such as the listing of Korea Development Bank, which chose its underwriter a few weeks ago.

As the threat of economic recession recedes, IPOs are making a comeback in advanced economies.

Even putting aside the frenzy over Facebook’s $5 billion IPO, two European listings raised a combined $2 billion this week, the region’s largest IPOs in almost a year, according to The New York Times. The Financial Times reported this week that stocks of recently listed companies are performing at nearly double the S&P 500’s movements.

But here in Korea, the IPO scene has been stalled. Between January and March, only seven companies have been or plan to be newly listed in both the primary Kospi and secondary Kosdaq markets, according to data from Korea Exchange.

This is a far cry from past years. In 2010, 26 companies had IPOs in the first quarter of the year, and in 2001, the number was 18.

Even at the height of the global financial crisis between January and March 2009, there were 11 IPOs.

“There aren’t many upcoming listings or companies seeking pre-IPO reviews from the Korea Exchange during the first half of this year,” said an official in charge of IPO underwriting at a domestic securities brokerage.

“Most companies are considering a listing during the latter half of the year,” he said, “And even then, they could postpone the listing review process depending on first-half earnings reports.”

Investment bankers point to lackluster business performances as the main reason companies have been reluctant to list.

Recent corporate performances in Korea have been underwhelming. In the case of listed companies, only six out of 42 companies which announced finalized 2011 fourth-quarter operating profits by Wednesday managed to beat analyst projections; the rest reported earnings that fell below market expectations, according to investment data provider FnGuide.

However, some company officials on the ground have suggested that tough pre-IPO reviews by Korea Exchange, the nation’s sole bourse operator, have further discouraged companies.

“[Korea Exchange] has been exerting an unspoken pressure for companies to lower their target offering price,” said the head of a recently listed Kosdaq company, adding that his company had lowered its target offering price from an upper band of more than 30,000 won per share down to little more than 10,000 won per share.

“I heard from the underwriter that when [the bourse operator] simply rejects the request for listing without attaching a particular reason, it means that the suggested price is too high.”

Local stock markets, and especially the smaller Kosdaq, had been under fire in the past for “inflating” offering prices beyond the companies’ underlying value, causing stocks to trade at a fraction of the initial offering price months after, causing losses to long-term retail buyers.

Golfzon, manufacturer of golf practice equipment, remained below its listing price of 85,000 per share since its IPO last May before barely catching up to reach 72,100 won yesterday. Fiber manufacturer TK Chemical’s stock price is little more than half its listing price of 5,000 won.

Meanwhile, KRX officials denied that their pre-IPO reviews had gotten tougher. “We apply the same official criteria to all prospective listings,” said Kim Nam-gyu, head of the first listing review team at the bourse operator.

With such slim pickings, landing a large IPO underwriting deal is a big ambition of local brokerages.

Traditionally strong players include Korea Investment & Securities and Woori Investment & Securities, with known track records of snapping up choice IPOs to underwrite, which is why Korea Development Bank’s choice of Samsung Securities as its lead underwriter for its IPO this year set the industry into a brief tizzy.

By Lee Jung-yoon [joyce@joongang.co.kr]