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IPOs

Korean IPOs lose steam as Big Hit shares plummet

Oct 16, 2020 (Gmt+09:00)

Big Hit Entertainment Co., the South Korean entertainment agency behind global sensation BTS, saw its shares drop by as much as 22% on Oct.16, the second day of trade after debuting on the country's main bourse with great fanfare on Thursday.

The stock finished at 205,000 won ($178) on Friday with a market cap of 6.7 trillion won ($5.8 billion), extending its losing streak for a second session. On Thursday, Big Hit shot up by the daily limit high of 30% to 351,000 won minutes after opening, but to the disappointment of many, the stock quickly fell into negative territory, closing the day 4% lower at 258,000 won.

Investors who bought Big Hit at the offering price of 135,000 won are still in the profit-taking zone, but the share price letdown has dashed investors' high expectations for the BTS label – highly anticipated as the IPO blockbuster of the year.

The plummeting share price is partly ascribed to foreign investors and institutional investors – speculated by the market as existing corporate shareholders – that sold off over 1.5 million shares combined. The uninspiring share movement sparks concern over Big Hit's valuation, as the recent Korean IPO craze appears to be fizzling – particularly as big names such as SK Biopharmaceuticals Co. and Kakao Games Corp. showed a similar pattern of declines right after their IPOs.

Big Hit’s predecessors SK Biopharm and Kakao Games made headlines in the IPO process as they pulled in a record-breaking demand for subscriptions and deposits. But the two companies also saw their share prices drop steadily once the lock-up period for institutional investors was lifted. Kakao Games' shares plummeted over 7% in a single day when the one-month lock-up period expired.

The future looks even grimmer for some of Big Hit’s retail investors seeking a timely exit before the lock-up period, ranging from 15 days to six months for institutional investors, is lifted. In the next month, over 1.5 million shares held by institutional investors will be released.

While the market largely remains bullish over the outlook for Big Hit's share price, some brokerage firms have revised down their target prices for Big Hit, believing the company is too reliant on BTS. Yuanta Securities Korea Co. set the highest price forecast at 296,000 won and Meritz Securities Co. set the lowest price at 160,000 won, far below the current price of 205,000 won.

Big Hit Entertainment shares opened at double the offering price and reached the 30% daily limit on Oct. 15.

KOREAN IPO MARKET LOSES STEAM

Analysts say the IPO buzz is waning as shares from a series of high-profile debuts – SK Biopharm, Kakao Games and Big Hit – lose steam. Retail investors are realizing that perhaps this route to fast cash was too good to be true.

There were 47 newly listed companies in Korea this year, with average returns from their offering shares touching around 50%. But only a few have actually made notable profits as many individual investors sold off their shareholdings on the third or fourth day of listing for quick gains.

Meanwhile, the Korea Capital Market Institute released a report saying overvalued offering share prices drop on an average of 5.73 percentage points within 10 trading days of listing.

Investors who have witnessed the IPO shares' pattern from SK Biopharm, Kakao Games, and Big Hit are selling off their allocated shares early on, assuming a long-term return on investment is unlikely.

Yet, enthusiasm over public offering shares is unlikely to die out anytime soon. Next year, a number of attractive companies valued in the trillion won range are in the IPO pipeline, including electric vehicle battery maker LG Energy Solutions, game developer Krafton Inc., Kakao Bank Corp., Kakao Pay Corp., Kakao Page Corp., and SK Bioscience Co.

These six companies’ value adds up to around 78 trillion won with the IPO volume estimated at around 15 trillion won. This by far exceeds the 2017 IPO record, when the total value of companies going public reached 35 trillion won with the public offering amount reaching 8 trillion won.


Write to Bum-jin Chun and Jae-won Park at forward@hankyung.com

Danbee Lee edited this article.

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