Why spend more on an IPO? No invitation to foreign banks

South Korea’s Viva Republica Inc. has recently invited a handful of domestic brokerage companies to give presentations to revive its IPO plan.

However, the operator of fintech platforms such as Toss Payments and Toss Bank has not sent invitations to foreign investment banks to pitch for its IPO mandates.

Among the brokerage houses invited by Viva Republica were Korea Investment & Securities Co., Mirae Asset Securities Co., Samsung Securities Co., KB Securities Co. and NH Investment & Securities Co.

Viva Republica is not alone in excluding foreign brokerage firms when selecting IPO managers, among the Korean companies aiming for a valuation of more than 1 trillion won ($750 million).

Drama producer SLL Joongang Co., Lotte Global Logistics Co. and LINE Games Corp. have picked only domestic brokerage houses to be their IPO manager.

The three companies are seeking an enterprise value of over 1 trillion won each.

Such a phenomenon illustrated a change in South Korea’s IPO scene, particularly for securities firms competing to win underwriting mandates.

Until a few years ago, almost all Korean companies seeking to list with a valuation of over $1 billion had tapped global investment banks.

However, as domestic securities companies have built experience and sharpened competitiveness, an increasing number of Korean companies feel no need to pay extra fees to hire foreign investment banks to go public.

Last year, none of the foreign investment banks underwrote a domestic IPO.

Among the Korean IPOs that have taken place since 2022, battery manufacturer LG Energy Solution Ltd. was the only offering handled mainly by a foreign brokerage house. It was listed on the Kospi in January 2022.

By comparison, online grocery platform Kurly Inc., internet-only lender Kbank and game developer Lionheart Studio have selected foreign investment banks such as JPMorgan, Citigroup Global Securities and Goldman Sachs as joint IPO bookrunners, along with domestic brokerage firms.

However, the three companies have not yet gone public.

Some industry observers say Korea's strict listing procedures and regulations seem to work to the advantage of homegrown securities companies over foreign rivals, in addition to their ample human resources at home.

Moreover, domestic securities firms distinguish themselves from foreign peers by providing a package of services not only on public offerings but also on future growth strategy, governance improvement and legal affairs.

Since 2020, homegrown securities houses have successfully managed high-profile local IPOs.

Kakao Games Corp., SK Bioscience Co., SD Biosensor Inc. Fadu Inc. and EcoPro Materials Co. successfully raised money through domestic IPOs between 2020 and 2023. Korean brokerage houses underwrote them.

If a foreign bank wants to muscle in, they may as well target foreign-owned companies, or wait until after Korean peers are selected and join them later.

HD Hyundai Global Service, a ship repair company, has picked JPMorgan, UBS and domestic securities firms as joint bookrunners for its planned IPO. Private equity firm KKR & Co. is its second-largest shareholder with a 38% stake.

Shift Up Corp., a mobile game developer, added JPMorgan as its IPO manager, eight months after it picked NH Investment & Securities and Korea Investment & Securities as IPO bookrunners in May of last year.

For foreign-owned companies, global investment banks still have the upper hand in the decision-making process.

Encarsales.com Ltd., owned by Australia-based CAR Group, withdrew its IPO last month as advised by Credit Suisse, a joint underwriter with Mirae Asset Securities, according to investment banking sources.

South Korea’s leading used car trading platform had planned to list on the junior Kosdaq market with a target enterprise value of around 1 trillion won.

Write to Seok-Cheol Choi at dolsoi@hankyung.com
 


Yeonhee Kim edited this article.