Korean IPOs scuttled as listing craze comes to an end

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

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

At least seven have been dismissed this year so far, and some of them were seen as key benchmark issues for market and investor sentiment.

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

“Now is the worst” time for an IPO, said Lee Jeong-hwan, assistant professor at Hanyang University’s College of Economics and Finance. “At a time of rising interest rates, companies cannot receive proper valuations and demand for stocks falls relative to bonds.”

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

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

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

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

With rising interest rates, investors tend to flock to stronger companies with strong earnings and high dividends and away from more speculative and less profitable stocks. They also switch to bonds.

In this environment, losing companies like Kurly would struggle to get a good valuation.

Kurly said he was awaiting the outcome of a preliminary review filed in March, while K Bank said he would “elastically” determine the timing of the listing. Olive Young said she will “closely monitor market conditions.”

“Many companies are forced to list at a lower price than they expected,” said Choi Jong-kyung, analyst at Heungkuk Securities. “Companies that can accept this are pushing to go public, while those that can’t, like Hyundai Oilbank, which is expected to see record sales this year, are suspending listings.”

About 1.6 trillion won ($1.23 billion) was withdrawn from IPO funds in the first half, according to Oh Gwang-young, an analyst at Shinyoung Securities.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 stocks, government bonds, and corporate bonds.

In the first half, 32 companies were listed on the stock exchange, raising a record 13.8 trillion won, although most of it was due to the 12.75 trillion won raised by LG Energy Solution, according to Oh.

A different approach

Companies that are still publicly traded are looking for ways to make their shares more attractive. Some reduced the price of the IPO, while others prohibited existing shareholders from selling their shares in the IPO.

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

Investors tend to prefer newly issued shares in an IPO because it means the funds raised will be spent on the company instead of benefiting existing shareholders.

Companies that had planned to sell large volumes of shares held by existing shareholders have failed to attract investors this year, as seen by SK Shieldus, One store and Hyundai Engineering, which planned to sell 75% IPO shares of existing shareholders. They canceled listings after failing to attract investors during the bookbuilding period.

“Socar has decided to issue only new shares,” said Jae Soo-hyun, a spokesperson for Seoul IR Network, which is promoting Socar’s IPO. He cited weak market conditions and some failed IPOs earlier this year as reasons for Socar’s decision.

“Although the market conditions are not optimal, the demand for reasonable consumption and mobility is increasing. Socar believes that the time has come to increase the influence of the company thanks to the funds obtained through the IPO .”

Socar held 78.6% of the national car-sharing market in the first quarter, followed distantly by Greencar, with 18.2%.

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

Its price range was between 44,000 won and 49,000 won. But the company slashed the price to 30,000 won per share, 32% below the lower price, after only 162 institutional investors participated in building the book.

Lunit was expected to be a big IPO.

Aprilbio, an organic venture capital firm, also cut the IPO price by 30% after failing to attract enough investors during the bookbuilding period. Its shares were sold at 16,000 won each, compared to the price range that ranged between 20,000 won and 23,000 won. It closed at 19,800 won on Tuesday.

Gradual recovery

Stockbrokers argue that the bid market will return.

Heungkuk Securities’ Choi projects that about 7.9 trillion won will 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 all 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 at 100,000 won. The IPO price of SebitChem, a battery recycling company, rose 17% on strong demand ahead of its IPO on Thursday.

“The global electric vehicle market is expected to grow by 31% per year on average, from 9.87 million in 2022 to 22.37 million in 2025,” said Yoon Hyuk-jin, analyst at SK Securities. “The battery recycling market is expected to grow by 41.5% per year, from 112,000 tonnes in 2021 to 452,000 tonnes in 2025.”

“The polarization of investors’ attention to certain sectors is a challenge that needs to be overcome in the IPO market in the second half of the year,” said Oh of Shinyoung Securities. He added that polarization leads to overvaluation of some companies and leads to heightened competition among traders to buy IPO shares, “which has frozen the IPO market” in the past.

BY JIN MIN-JI [[email protected]]

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