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IPOs

Firms vie to become Krafton's $883 mn IPO manager

Oct 21, 2020 (Gmt+09:00)

A competitive lineup of securities firms gathered at game developer Krafton Inc.'s office building in Pangyo, Gyeonggi province on Oct. 21 to pitch for the company's IPO underwriter position. 

Krafton is the label behind the international hit game PlayerUnknown’s Battlegrounds (PUBG) with an estimated enterprise value at around 30 trillion won ($26.5 billion).

Brokerage firms would fetch anywhere from 15 billion won to 20 billion won in incentives and fees as the company's IPO underwriter as it's anticipated to be South Korea's hottest IPO blockbuster in 2021, seeking to raise over one trillion won ($883 million). 

The price tag was likely a factor in leading brokerage firms' CEOs showing up for the pitch. Jung Il-moon, CEO at Korea Investment & Securities; Choi Hyun-man, executive vice chairman at Mirae Asset Daewoo Securities; Chang Seok-hoon, CEO at Samsung Securities; and Jeong Young-chae, CEO at NH Investment & Securities were in attendance. 

The CEOs' attendance should come as no surprise as it has considerable impact on underwriter selection as its shows senior executives that the firm is dedicated. Also in attendance were Chang Byung-gyu, Krafton's founder and chairman; Kim Chang-han, the chief executive officer; and Bae Dong-geun, the chief financial officer.

In August 2019, Korea Investment & Securities became Taekwang Industrial Co.'s IPO manager after Chairman Kim Nam-goo made a 10-hour round-trip to the shoe manufacturer's headquarter in Gimhae, a Southeast city in Korea, to attend the underwriting pitch. Industry players credit Chairman Kim with securing the underwriter position through his efforts. 

Earlier in February, CEOs from three big brokerage firms – Korea Investment & Securities, NH Investment & Securities and Mirae Asset Daewoo Securities –attended the pitch for Big Hit Entertainment Co.'s IPO underwriter appointment.

Initially, Mirae Asset Daewoo was not included but Chairman Park Hyeon-joo contacted Big Hit Entertainment's CEO Bang Si-hyuk directly to ask if they could join the pitch. Eventually, Mirae Asset Daewoo became a joint underwriter for the biggest IPO so far this year.

Two global brokerage firms, Citigroup Global Markets Korea Securities and JP Morgan, also pitched for Krafton's IPO underwriter position. The firms both managed local mobile game company Netmarble Corp.'s listing in 2016 and this year Citigroup and JP Morgan successfully listed SK Biopharmaceuticals Co., and Big Hit Entertainment, respectively.

The investment banking industry says there is a high likelihood that Krafton will mandate two domestic firms and two foreign firms.

According to Krafton's internal guidelines, firms that exaggerate enterprise valuation will be eliminated since it is important to have a valuation based on objective figures and outlook for a successful IPO.

“A sound understanding of the game industry and in-depth analysis of the company’s growth potential will be an important criterion,” said a company source.

Meanwhile, Krafton has indicated that its IPO may be pushed back as Korea's major game companies' share prices have performed poorly of late.

Netmarble’s share price closed at 133,000 won on Oct. 21, considerably lower than its offering price of 157,000 won. Another game developer and publisher NCSoft Corp.’s share price closed at 809,000 won, far below the 900,000 won range from August 2019.

Krafton's earnings nearly quadrupled year on year to 405 billion won in the first half of the year on revenue of 887.2 billion, and operating profit of 513.7 billion won. It is expected to reach 1 trillion won in annual operating profit this year.

Write to Ye-jin Jun and Joo-wan Kim at ace@hankyung.com

Danbee Lee edited this article.

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