This year has been a bumper year for South Korea's Initial Public Offering market,… with a parade of blockbuster debuts setting new records.
Amid an influx of liquidity and a debt-financed retail asset frenzy,… cash-rich investors have rushed into the IPO market looking for quick gains.
In fact, in the third quarter, the country's IPO market has been on fire,… with proceeds expected to beat that of Hong Kong's for the first time since 2017.
Another mega IPO for the South Korean stock market is just around the corner.
For that we have our Eum Ji-young in the studio.
Good to have you Ji-young.
Good Evening Connyoung.
Ji-young, The fintech company Kakao Pay will debut on the country's benchmark KOSPI next week,… on November third.
It's affiliated of course with South Korea's largest smartphone chat application,… Kakao.
It seems that bidding for these shares was fierce.
Tell us how the pre-IPO bidding unfolded today.
Sure Connyoung. Investors raced to get their hands on shares of Kakao Pay,… pouring about 5 billion U.S. dollars into retail orders.
Submitted orders came to around 30 times the amount of stocks made available.
Each retail investor will be able to get an average of 2.3 shares.
Investors showed high interest in Kakao Pay as it is the country's largest mobile payment service company with a membership of more than 20 million people.
The two-day pre-IPO bidding for retail investors took place this Monday and Tuesday.
Despite the pandemic, during the two-day pre-IPO subscription period, many investors visited brokerage houses trying to join in the frenzy. Take a listen.
"I visited the branch because Kakao Pay's pre-IPO subscription takes place today and tomorrow. You don't make any losses when it comes to buying shares ahead of the IPO. I'm putting in around 30 million to 40 million won, more than the minimum amount, hoping to get more shares."
"I came to the branch because of the Kakao Pay pre-IPO bidding. We talk using Kakao app and we use Kakao Pay whenever we transfer money online. I believe most people in South Korea use the service and it's becoming more common. So I thought owning Kakao Pay shares could lead to a profit. I'm thinking of bidding for 100 shares today."
Similar to other IPOs, while some people visited the brokerage houses for the IPO, many others subscribed for shares online. What are some of the things that are different this time from previous cases?
Connyoung, What's different is that for the first time, on the first day of the bidding, the subscription was open until 10 PM for people who subscribe online, rather than 4PM, so that more people can join.
No Ah-young, an office worker says, she bid for shares of Kakao Pay after she got off work on Monday.
"During the previous IPO subscriptions, it was a little burdensome for an office worker to do it before 4PM. I had to put money into my account and bid for shares by going into the app during my working hours. It was inconvenient before, but this time, I feel comfortable as I can do it after work."
Also, an important difference is that KakaoPay will be the first company in South Korea to distribute its stocks ahead of the IPO with an equal chance for all retail subscribers who deposit the minimum amount.
Until last year, shares were generally given to only those who bid large amounts, and there was a much smaller chance for those with low deposits to get any shares at all.
But starting this year, the allocation method has been revised so that a certain amount of shares allotted for individual investors are distributed equally as long as those investors deposit the minimum amount.
So, unlike other companies, Kakao Pay is distributing all of its shares allotted for retail investors which is 25 percent of the new shares it's issuing, with an equal chance.
"This time, 100 percent of shares allotted for retail investors are distributed with an equal chance so, I believe that it is unlikely that I'll get more shares even if I put more money in. So I just deposited the money for 20 shares which is the minimum amount."
This measure is likely to enable as many retail investors to own the Kakao Pay shares.
But due to this measure, many say the amount of subscription deposits was far less than previous blockbuster IPOs including Kakao bank where the retail bids amounted to about 50 billion U.S. dollars.
To reserve shares, retail investors usually have to deposit half the amount of the shares they want to buy at the IPO price, which means the minimum investment for Kakao Pay shares is 900-thousand won or about 7-hundred-70 dollars, which is half the amount of the minimum 20 shares.
The company also took orders from institutional investors last week to set the IPO price and I hear the competition was fierce.
Yes, you are absolutely right Connyoung. It had a two-day book-building session which ended on Thursday, to take bids from institutional investors.
The IPO price was set at 90-thousand won or around 76 U.S. dollars per share.
It's at the high end of its proposed price range as it was oversubscribed by a factor of more than 17-hundred.
Also, more than 70 percent of firms have signed up to keep the shares for at least 6 months.
Shares allotted for Kakao Pay employees were also fully subscribed.
After it debuts on the KOSPI, the expected market capitalization of Kakao Pay will be around 10 billion dollars, which will put the fintech firm among the top 30 market caps.
Experts say the market expectation for Kakao Pay is high.
"Kakao Pay is the fintech company that is backed by Kakao, the most widely used chat app in South Korea. It has high potential for expansion in the financial market and the company is expected to have increased revenue and profits."
Kakao Pay is likely to make headlines on the business pages on its first day of public trading next Wednesday, as it is getting lots of attention from investors. So what's the expectation of the share price on the first day of trading?
With the fierce competition of the subscription for shares, many are expecting the share price to jump shortly after trading begins.
But some experts say 'ddasang', a local market slang describing the share opening at more than twice the IPO price and hitting the daily upper limit of 30 percent above the opening price, is not likely for Kakao Pay.
"Currently, the financial market is going through a slow period. The price of Kakao Bank shares failed to double on the first day of trading. Kakao Pay is likely to go through similar phases in the early days of trading."
Another expert suggested it could be overpriced, highlighting how the IPO had already been delayed by a couple of months as the country's financial watchdog said the initial valuation was too high,… calling Kakao Pay to revise down its prospects.
"I personally think that on the first and second day of trading, the share price could rise. But I believe 'ddasang' will not be possible. Several securities firms estimated the reasonable price range to be at around 100-thousand won to 110-thousand won."
He added even with the IPO, it is important for the investors to pay attention to the fundamentals and the potential long term growth of the firm rather than selling it in the early days of trading.
He also said that investors should look forward to some other big IPOs that are coming up in the near future including Kakao Mobility and LG Energy Solution.
Ji-young, thank you for the thorough reporting today.