Overhang concerns loom over HD Hyundai Marine IPO shares

Concerns are growing that South Korea’s main stock bourse could be inundated with a huge number of HD Hyundai Marine Solution Co. shares next week when the company goes public, as nearly all of its foreign holdings will be freed up for sale immediately after its debut.

According to the company’s initial public offering prospectus on Thursday, institutional investors took 4,895,052 IPO shares of HD Hyundai Marine Solution, of which 1,958,067 shares, or 40%, were sold to foreign institutions.

However, only 0.1% of such foreign holdings are under lock-up agreements, meaning the remaining 99.9% foreign holdings, or 1,957,267 shares, could flood into the market on Hyundai Marine Solution's May 8 debut, depressing its stock.

On the contrary, holders of some 92% of Korean institutional shares, the remaining 2,910,337, agreed to mandatory retention of the stock for at least 15 days.

A lock-up agreement is signed between a company seeking to go public and its investors to prevent the company’s early investors from offloading shares immediately after the stock’s IPO, which often leads to a sharp drop in the stock price due to overhang issues.

The “cooling-off” period mandated by the lock-up also helps to reduce the volatility of the new stock trading. This is a voluntary agreement.

TO PAVE THE WAY FOR KKR’S EXIT

Speculations are circulating that HD Hyundai Marine Solution has freed most foreign institutions from mandatory holding agreements to allow its second-largest stakeholder KKR & Co. Inc. to cash out of its holdings upon the IPO without hassle.

The US investment giant owns a 38% stake in the vessel maintenance and aftermarket (AM) service unit of Korea’s No. 1 shipbuilding group HD Hyundai Co., which is also its largest stakeholder with 62%.

KKR invested in HD Hyundai Marine Solution on the condition that the Korean company will go public by 2026.

According to the two parties’ deal, the US investor is set to sell 1,057 shares following HD Hyundai Marine Solution’s advanced IPO, suggesting it may need a large institution from overseas that can digest its massive holdings up for grabs in a block-trade sale.

Following the sale, KKR’s holdings in the Korean company are expected to fall to less than a quarter of the current level, according to HD Hyundai Marine Solution.

BLOCKBUSTER OR BUMMER

HD Hyundai Marine Solution is offering 8.90 million shares via listing on Korea’s main Kospi market to raise 742.6 billion won ($544 million). It will issue 4.45 million new shares while selling 4.45 million old shares, including KKR holdings.

This is the largest IPO in Korea since LG Energy Solution Ltd. more than two years ago. 

Reflecting the market’s high expectations for the newbie, its IPO stock price was determined at the top end of its guided IPO price range between 73,300 won and 83,400 won apiece.

It also attracted 1.04 million retail investors for 2.35 million shares, recording a 256 to 1 competition ratio in public subscriptions from April 25 to 26.  

The highly anticipated blockbuster IPO for this year, however, may end up a disappointment due to such a huge number of unlocked shares, market analysts worried.

Last year’s big star IPO Doosan Robotics Inc. nearly doubled the IPO price on its debut day in October but this was seen as a letdown considering the hype during its institutional and public subscriptions.

Foreign investors were found to have offloaded 1,658,035 shares of Doosan Robotics on its public market debut day, taking 48 billion won in profit.

Market analysts fear this could happen to HD Hyundai Marine Solution on its market debut next Wednesday. 

The company’s market capitalization is estimated at 3.71 trillion won. Of its total listed shares, 9.9%, or 4,417,880 shares, will be floated for sale on its debut day, which will be worth 368.5 billion won based on the IPO price.

Write to Jeong-Cheol Bae at bjc@hankyung.com

Sookyung Seo edited this article.