Caution urged over IPO deals

Finance

Published: 16 Feb. 2016, 20:25

Caution urged over IPO deals

While large conglomerates and some foreign firms are preparing to go public, the financial market watchdog has warned investors to make choices carefully as the real value of the firms’ shares may be lower than the offering price.

The Financial Supervisory Service (FSS) said on Tuesday that 33 out of 118 new stocks that went for initial public offering (IPO) last year saw prices at the year’s end drop 21 percent lower than the initial offering price.

Some 26 companies’ stocks dropped below the offering price by an average 10 percent.

In the last two months of last year, some 10 companies canceled their IPO after investment demand fell short because they suggested an excessively high offering price.

“Investors should carefully check stock demand estimations, how the offering price was calculated, and the transparency of each company’s financial status,” said Moon Hyung-jin, an FSS official.

The local securities industry forecast that nearly 130 companies will go public this year in the primary Kospi and the tech-heavy Kosdaq markets. Last year 118 companies’ IPOs in the two markets raised some 3.7 billion won ($3.7 billion).

Hotel Lotte unveiled its plans on Jan. 28 to begin the IPO process. It will set an offering price at the company’s shareholders’ meeting next month.

After the group’s core affiliate goes public, more affiliates, including Lotte Data Communication Company, Korea Seven and Lotteria are forecast to also go public, according to the Korea Exchange (KRX).

Some companies including Hengsheng Group and LS Industrial System Asia have started working on their preliminary screenings with the KRX.

More than 11 trillion won is expected to be collected in the two markets via public offerings, consisting of 9 trillion won on large-cap shares going public in Kospi and 2.1 trillion won on technology shares in Kosdaq, according to the Eugene Investment & Securities on Tuesday.

The financial market watchdog and regulators also expressed worries, as several Chinese companies are seeking to go public in Korean stock market this year.

In 2011 a Chinese company was found to have violated local exchange accounting standard. The company was delisted in 2013, and no other Chinese companies have shown interest of going public in Korea due to low demand.

“Investors should understand that risks always exist when buying foreign firms’ stocks, due to legal and structural differences between the Korean investment environment and that in overseas,” the FSS official said.

BY KIM JI-YOON [kim.jiyoon@joongang.co.kr]