Korean IPOs scuttled as listing madness comes to a fast end

Finance

Published: 02 Aug. 2022, 18:28 Updated: 02 Aug. 2022, 18:57

Korean IPOs scuttled as listing madness comes to a fast end

SungEel HiTech CEO Yi Kang-myung, center, celebrates the listing of the company on Kosdaq on July 28. [NEWS1]

With stocks down and investors feeling burned, initial public offerings (IPO) are being cancelled, delayed and reconsidered.

At least seven have been nixed this year so far, and some of them were considered benchmark issues key to market and investor sentiment.

In February, Hyundai Engineering called off its listing. That was followed by SK Shieldus and One store, also scheduled for the first half. Olive Young and K Bank, which were expected to go public in the second half, said they're closely watching the market.

"Now is the worst" timing for an IPO, said Lee Jeong-hwan, an assistant professor, College of Economics and Finance, Hanyang University. "At a time of rising interest rates, companies can't receive proper valuations, and demand for stocks falls over bonds."

The Kospi is down almost 20 percent this year, and a number of recent IPOs have performed particularly poorly.

Kakao Games has lost more than half its value since peaking last year, Kakao Bank is off two-thirds from its 52-week high, as is SK ie technology. SK Bioscience has lost almost three-quarters of its value, and Coupang is down three-quarters from its high.

LG Energy Solution is down almost a third from its 52-week high.

Investors have lost money and faith in the market, especially in initial public offerings that were so heavily marketed to them in recent years. Crypto losses and falling real estate prices add to the negative sentiment.

With rising interest rates, investors tend to rush toward more solid companies with strong earnings and high dividends and away from more speculative and less profitable stocks. They also move into bonds.

In this environment, money losing companies like Kurly would have a tough time getting a good valuation.

Kurly said it is waiting for the result from a preliminary examination filed in March, while K Bank said it will "elastically" determine the timing of the listing. Olive Young said that it will "closely watch market conditions."

"Many companies are forced to proceed with the listing at a price that is lower than they had expected," said Choi Jong-kyung, an analyst at Heungkuk Securities. "Companies that can accept that are pushing the IPO, while those that can't, like Hyundai Oilbank, which is projected to report record sales this year, are suspending their listings."

Around 1.6 trillion won ($1.23 billion) was withdrawn from IPO funds in the first half, according to Oh Gwang-young, an analyst at Shinyoung Securities. IPO funds typically hold newly issued shares, state bonds and corporate bonds.

In the first half, 32 companies listed, raising a record 13.8 trillion, though most of that was due to the 12.75 trillion won raised by LG Energy Solution, according to Oh.

Different Approach

Companies still going public are looking for ways to make their stock more attractive. Some cut the IPO price, while others prohibited existing shareholders from selling their shares in the IPO.

Socar, a car-sharing company, was one of them. It said the existing shareholders will not sell their shares in the IPO.

Investors tend to prefer newly issued shares in an IPO, as it means the funds raised will be spent for the company instead of profiting the existing shareholders.

Companies that had planned to sell large volumes of shares held by existing shareholders failed to attract investors this year, as was seen by SK Shieldus, One store and Hyundai Engineering, which planned to sell 75 percent of IPO shares from the existing shareholders. They called off the listings after failing to attract investors in the book-building period.

"Socar decided to issue only new shares," said Jae Soo-hyun, a spokesperson for Seoul IR Network, which promotes Socar's IPO. He cited weak market conditions and some failed IPOs earlier this year as the reasons for Socar's decision.

"Although the market condition isn't at its best, demand for reasonable consumption and mobility are increasing. Socar believes now is the right time to raise the company's influence with the funds obtained from the IPO."

Socar had 78.6 percent of the domestic car sharing market in the first quarter, distantly followed by Greencar, with 18.2 percent.

Lunit, a medical technology provider, cut its IPO price by more than 30 percent from the price band for its Kosdaq debut on July 21.

Its price band ranged between 44,000 won and 49,000 won. But the company slashed the price to 30,000 won per share, 32 percent down from the lower price, after only 162 institutional investors took part in the book building.

Lunit was expected to be a big IPO.

Aprilbio, a bio venture company, similarly slashed the IPO price by 30 percent after it failed to attract enough investors in the book-building period. Its shares were sold at 16,000 won apiece, compared to the price band that ranged between 20,000 won and 23,000 won. It closed at 19,800 won on Tuesday.

Gradual recovery

Stockbrokers argue that the market for offerings will return.

Choi from Heungkuk Securities projects around 7.9 trillion won to be raised from IPOs this year, excluding the 12.75 trillion won raised by LG Energy Solution. In 2021, 20 trillion won was raised in IPOs.

Choi said this year's IPO market will show "moderate flow compared to any other years in the past," following the listing of mega IPOs, like Kurly and Socar, in the second half.

A recovery in demand is particularly evident in the renewable battery sector.

SungEel HiTech, a battery recycling company, doubled after listing on Kasdaq to 100,000 won. The IPO price of SebitChem, a battery recycling company, was increased 17 percent on strong demand ahead of its listing on Thursday.

"The global EV market is projected to annually grow 31 percent on average from 9.87 million in 2022 to 22.37 million in 2025," said Yoon Hyuk-jin, an analyst at SK Securities. "The battery recycling market is projected to annually grow 41.5 percent from 112,000 tons in 2021 to 452,000 tons in 2025."

"Polarization of investor attention on certain sectors is a challenge that needs to be overcome in the IPO market in the second half," said Oh from Shinyoung Securities. He added the polarization results in overvaluation of certain companies and leads to overheated competition among traders to buy IPO shares, "which froze the IPO market" in the past.

BY JIN MIN-JI [jin.minji@joongang.co.kr]