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Ahead of mega IPOs in coming days in S. Korea, controversy of overvaluation rises Updated: 2021-08-04 13:40:46 KST

The South Korean stock market has been seeing one big IPO after another.
These new issues have been consistently over-subscribed by retail investors at a ratio sometimes more than a thousand to one.
More huge IPOs are just around the corner, one this Friday and another one next week, though some are calling into question whether valuations in some cases are way out of balance.
For more on this, we have our Eum Ji-young in the studio.
Good to have you Ji-young.

Good afternoon.

Another blockbuster IPO is coming up this Friday,… August 6th South Korea's largest internet-only bank, Kakaobank, affiliated of course with the country's big smartphone chat application Kakao. It seems that bidding for these shares is fierce but not as much as some other recent IPOs.

Devin. Many investors raced to get their hands on shares of Kakaobank,during the 2-day subscription period last Monday and Tuesday.
Some 1.9 million people bid for shares and they poured in some 50 billion U.S. dollars into retail orders.
Submitted orders came to around 183 times the amount of stocks made available.

"I deposited one hundred million won because the company looked promising. When Kakaobank first opened, it drew lots of attention and I believe the number of accounts is currently the largest among local mobile banks."

Although the competition was high, the response it got from retail investors was not as hot as previous IPOs.
The amount of subscription deposits made was the fifth largest for a local IPO, but was far less than those of other big-name companies that went public earlier this year, including SK IE Technology and SK Bioscience.
Kakaobank has priced some 65.45 million new shares at around 34 dollars each.
That is at the high end of its proposed price range for its initial public offering.

But there's some controversy. This valuation could make Kakaobank bigger than some of Korea's most established financial institutions and it doesn't even have any brick-and-mortar locations.

Yes, That's right. Some say Kakaobank's IPO price is overvalued.
That's because a relatively small venture in terms of asset size and earnings would become one of the largest financial institutions in the country right after listing.
Experts say, as the price is overvalued, Kakaobank is unlikely to see the dramatic price rises that previous IPOs saw in the first days on the KOSPI.

"Since last year, there was a high demand in shares for IPOs and record high deposits were gathered. This triggered companies going public to set the IPO price aggressively. This time, the market is expected to be colder than before. Although there's high chance that the opening price will be higher than the IPO price, it is unlikely that it will lead to a dramatic price jump."

Controversy over the IPO price is also the case for one of South Korea's biggest game makers,… Krafton.
The 2-day public subscription for the game developer behind global blockbuster 'PlayerUnknown's Battlegrounds' ended yesterday but the sales of shares were rather disappointing.
Orders came to merely 8 times the amount of shares made available, significantly lower than Kakaobank, which had 183 orders per share, or Kakao Games with 1,525 orders per share.
Also deposits taken for Krafton amounted to only about 4.4 billion dollars.

"I didn't participate in the subscription for Krafton because of the relatively low competition rate among institutional investors. Also I thought the IPO price is much higher than its truth worth."

Ahead of its debut on the benchmark KOSPI next Tuesday, Krafton has priced some 5.6 million new shares at 498,000 won or around 432 dollars each.
Some critics say the shares are overpriced because they put Krafton's valuation at around 21 billion dollars,… which is more than NC Soft, the biggest game developer listed in South Korea.

"The biggest reason for the overvaluation is that 90 percent of its sales are coming from only one game, 'PlayerUnknown's Battlegrounds'. I encourage people to sell the shares as soon as the market starts on the first day of going public because the price is overvalued."

Despite the huge interest among investors,… the resurgence of COVID-19 has meant that we have not seen the big crowds at the brokerage houses for these IPOs. The main way to buy is online.

Right Devin. Following the application of level 4 social distancing measures in the capital, some brokerage firms limited the number of customers that can enter.
This is unlike the IPOs of SK Bioscience and others when brokerages had people lining up to make accounts so they could join the frenzy.
A branch manager of a securities brokerage house says about 70 percent of bids are being made online.

"The number of customers who are actually visiting has decreased compared to the past. This is due to the pandemic as well as retail investors not being able to submit multiple applications at different brokerage houses unlike past subscriptions."

What are some other big IPOs coming up in the near future?

One of the companies that's receiving lots of attention is KakaoPay,… South Korea's largest online payment service with 36 million users.
It was originally set to start its public subscription today but was delayed after the financial watchdog demanded that it corrected its filing and revise subscription price ranges.
It plans to go public in the second half of this year.
Kakao mobility, the transportation services unit of Korea’s dominant chat app operator Kakao also plans to go public within months.

"One of the most anticipated mega IPOs would be LG Energy Solution, a spinoff from LG Chem. As the electric car market is growing, the battery market will also expand."

He also mentioned some other IT companies that are now trading over the counter but will go public soon.
Those include e-commerce platform Market Kurly, online fashion shop Musinsa, the accommodation booking platform Yanolja and Viva Republica, which runs Korea’s largest fintech startup Toss.
Shares of these companies are unlisted, but they've been rising in price with IPOs expected in the next year or so.

Ji-young, thank you for the thorough reporting today.

Thank you.
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