BTS label Big Hit prices IPO at top end of range at $115

Big Hit Entertainment Co. has priced its public share offering at the top end of its proposed range at 135,000 won ($115), with bids outnumbering offers 1,117 to 1, according to the company's regulatory filing on Sept. 28.

Based on the price, the agency, home to seven-member boy band BTS, will raise approximately 962.6 billion won ($820 million) through the initial public offering. Initially, it proposed its IPO share price between 105,000 and 135,000 won, compared to brokerage companies' target prices ranging from 160,000 won to 380,000 won.

During a two-day bookbuilding last week, a total of 1,420 institutional investors, including 333 foreign firms, submitted bids. Among them were BlackRock and Singapore's GIC, according to investment banking sources on Sept. 27.

Big Hit is offering 7.13 million shares in the IPO, of which 80% will be allocated to institutional and retail investors and the remaining 20% for employees and executives.

The proceeds will be used to repay loans, foster business ventures at home and abroad, in addition to constructing a new building for the company.

The IPO comes after BTS, the global boy band sensation, became the first Korean group to reach the No. 1 spot on the Billboard Hot 100 list with their latest single “Dynamite.” Riding on BTS’s success, Big Hit has assumed the lead in the domestic entertainment industry.

Institutional investors' bids for Big Hit shares were not as competitive as those for Kakao Games’ bookbuilding, which set a record with bids outnumbering offers 1,479 to 1 in August.

Further, less than half of them signed lockup agreements for BTS' new shares, meaning that many institutional investors are seeking short-term price gains from the IPO, rather than holding them longer term given increased market volatility. In comparison, more than half of institutional investors expressed their intent to hold shares of SK Biopharmaceuticals Co. and Kakao Games, two high-profile IPOs on the Korea Exchange this year, for the longer term.

During the IPO process, there were concerns that Big Hit may be too dependent on BTS, a possible explanation for reduced institutional investor participation during the bookbuilding.

The company addressed the matter by stressing their commitment to transforming their fan-based business into a value-added business. During a recent IR session, Big Hit said that it has been building a business model to maximize profits even without its artists' activities, in reference to two of the BTS members nearing their mandatory military service.

EYES ON RETAIL INVESTORS, ARMY

Subscription for retail investors will take place between Oct. 5 and 6. The market is paying close attention to how much Big Hit will raise via subscription deposits. So far, Kakao Games holds the record for pulling in almost 59 trillion won from retail investors in these deposits.

This month, Korean asset managers rolled out retail funds targeting Big Hit IPO shares. Internet-based K Bank recently unveiled a loan product to fund individual investors' Big Hit IPO subscriptions for up to 45 million won per person.

Additionally, BTS' fans, belonging to the ARMY fan club, are highly expected to participate in the public subscription.

Big Hit is set to list on the Korea Exchange on Oct.15, as the first entertainment company to debut on the main bourse.

Founded in 2005, the company’s founder and chief executive officer Bang Si-hyuk is the biggest shareholder with a 45.1% stake. Korean game company Netmarble is the second-biggest shareholder with 25.22%. Other majority shareholders include local private equity firm STIC Investments with a 12.24% stake, and China-based VC Legend Capital.

NH Investment & Securities, KB Investment & Securities, JPMorgan and Mirae Asset Daewoo were bookrunners of the IPO. Including Kiwoom Securities, Big Hit will pay the five brokerage firms a combined 7.7 billion won, or 0.8% of the value of the shares offered, in underwriting fees, according to the filing.

Write to Ye-jin Jun at ace@hankyung.com