South Korea plays insane game of Whac-A-Mole IPO
HONG KONG, July 23 (Reuters Breakingviews) – South Korea is learning how difficult it is to calm an overheated stock market. The country’s financial regulator recently intervened on initial public offerings by video game developer Krafton (259960.KS) and others. Still, Kakao Bank’s upcoming market debut indicates that the sparkling deals will persist.
The benchmark KOSPI 200 index is up 47% from last year, making it the best performing major index in the world. Credit a growing army of mom-and-pop traders, who account for 90% of daily volumes on local exchanges this year. Of the top 10 domestic companies by market cap, half are trading at more than 35 times 12-month earnings futures, through Refinitiv, including the $ 57 billion super-app operator Kakao Corp (035720. KS) and contract drug maker Samsung Biologics (207940.KS)). Their shares are selling 73 times and 142 times, respectively.
Kakao is among those who jump at the chance, listing two FinTech affiliates. So far this year, three companies have raised $ 4 billion through IPOs, according to Dealogic, nearly $ 5 billion in total revenue from the previous two years combined. About another dozen are gearing up major floats in the second half of the year, including an LG Chem spin-off (051910.KS) that could be the biggest ever bid in the country. Its battery business seeks to raise more than $ 10 billion for a valuation of up to $ 90 billion, reports IFR.
Alarm bells are ringing in Seoul. The Financial Supervisory Service last week asked Kakao Pay to revise its listing document on the grounds that it could contain false information, omit important facts or mislead investors. This is the third time this year that the agency has made such a request, up from zero in 2019 and seven in 2020, according to local media. As a result, Krafton and SD Biosensor (137310.KS) have reduced the size and price ranges of their offerings.
Record interest rates, severe restrictions on the real estate market and exuberant investors are formidable forces, however. Kakao Bank escaped regulatory scrutiny and said on Thursday it raised $ 2.2 billion after valuing stocks at the top of the range. An implied market cap of $ 16 billion puts it at 6.5 times book value, according to its first quarter numbers, a huge premium for traditional banks. This suggests that South Korea is playing an unfortunate game of Whac-A-Mole IPO.
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– Kakao Bank, South Korea’s largest digital lender, raised 2.6 trillion won ($ 2.3 billion) in an initial public offering after pricing the shares at 39,000 each, the top of the indicative price range, the company said in a document filed on July 22. .
– On July 16, the country’s Financial Supervisory Service asked financial technology affiliate Kakao Pay to revise its initial public offering prospectus.
– Kakao Pay planned to raise up to 1.6 trillion won ($ 1.4 billion). At the top of the indicative price range, the company is said to have a market valuation of 12 trillion won.
– The regulator did not give details but said the IPO registration statement fell into one of three categories: being in an incorrect format; containing false information or omitting important facts; or containing unclear statements that could mislead investors. Under South Korean rules, failure to revise the registration statement within three months would result in the withdrawal of the original statement.
Editing by Jeffrey Goldfarb and Sharon Lam
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