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Market Kurly faces bumpy road to 2021 US listing

By Mar 16, 2021 (Gmt+09:00)

Market Kurly faces bumpy road to 2021 US listing
South Korea's Kurly Inc., better known by its brand name Market Kurly, has recently terminated its contract with IPO manager Samsung Securities Co., according to investment banking sources on Mar. 15 – just after its founder and Chief Executive Sophie Kim revealed plans to go public within the year.

In 2018 the online grocery food delivery startup picked Samsung Securities to prepare a domestic stock market listing. But its initial public offering was delayed as the startup failed to meet IPO requirements.

The contract cancellation with the Korean brokerage firm might have brought Market Kurly's nearly three-year efforts to go public to naught. But it adds to market speculation that the premium food and gourmet food delivery company may begin the process for a US listing, following in the footsteps of bigger hometown rival Coupang Corp., which listed on the New York Stock Exchange last week.

Kim told the Wall Street Journal in a recent interview that the company is in discussions with bankers to go public in 2021. 

Her remarks came around the time when Coupang raised a more-than-expected $4.6 billion from its US IPO. Coupang, which introduced same-day, or 'rocket delivery,' service nationwide, had mandated Goldman Sachs to prepare its US stock market listing for 10 years, and added JPMorgan Chase and Allen & Company as co-underwriters later on. 

Market Kurly founder and Chief Executive Sophie Kim
Market Kurly founder and Chief Executive Sophie Kim

As Market Kurly was founded by an ex-Goldman Sachs analyst, industry sources speculate that it will likely soon hire a global securities firm to launch the process to list in New York no later than 2023.

MINORITY SHAREHOLDERS

Coupang's successful US IPO may increase pressure on Kurly, founded in 2014, to follow suit. 

Under the drag-along provision agreed with its financial investors in 2018, Market Kurly's minority shareholders are allowed to sell their holdings if the Korean startup fails to list within the next three to five years. 

Kurly raised a combined 420 billion won in five funding rounds, resulting in CEO Kim’s stake dropping to 10.7%. Its financial investors include SK Networks Co., Sequoia Capital, Hillhouse Capital and DST Global, as well as Hong Kong-based Aspex Management and US-based Translink Capital.

The CEO's relatively low shareholding may prompt the loss-making startup to opt for a US listing where its dual-class share structure allows a single share held by the company's founder or executive to exercise multiple voting rights, analysts said. 

TASKS AHEAD

To qualify for a US stock market debut there are requirements in three categories: profit, sales and cash flow. Market Kurly satisfies one of them: Sales must come to at least $75 million in the most recent fiscal year, along with an enterprise value of $750 million.

Its sales are understood to have exceeded 1 trillion won last year, double the 428.9 billion won posted in 2019. Its enterprise value is estimated at over 1 trillion won, higher than the 950 billion won valued for its latest funding in 2020.

Still, it has yet to meet the criteria in terms of profit and cash flow. It posted an operating loss in the 100 billion won range last year, falling short of the requirement stipulating that the combined pre-tax profit of the previous three years must be at least $100 million, or the average pre-tax profit of the previous three years needing to be at least $25 million.

Kurly also needs to turn to positive cash flow. The New York Stock Exchange stipulates that a qualified IPO company needs to show an operating cash flow of at least $25 million on average over the previous two years, with at least $100 million in annual sales in the most recent year and a market value of at least $500 million.

COMPARISIONS TO COUPANG
 
Both Coupang and Kurly remain in the red: Coupang's cumulative losses stand at 4.5 trillion won, compared with Kurly's shortfalls estimated at 300 billion won. 

But Coupang managed to swing to a positive operating cash flow last year, with its sales doubling in the wake of the COVID-19 outbreak.

Still, Kurly lags far behind Coupang in terms of transaction volume and user numbers. 

Kurly reached 1 trillion won in annual sales last year for the first time in its six-year history. In comparison, Coupang posted 13 trillion won in 2020 sales with a transaction value of 22 trillion won. Coupang controls 13% of the domestic e-commerce market with 15 million users, more than double Market Kurly's 7 million members.

In the interview with the Journal, Kim said she would keep Market Kurly’s focus on food, rather than branch into other product categories.

But analysts recommend that Kurly look beyond fresh grocery delivery service to achieve economies of scale so that it can secure a higher valuation. Its fresh produce-focused business makes it difficult to improve sales significantly and requires heavy spending on inventory and logistics management.

"In order for Market Kurly to list on the US stock market, it has to prove itself in a fierce market environment," said an industry source. "Coupang, armed with 7 trillion won in fresh money from its IPO, is rapidly expanding its presence, with online platforms Naver and Kakao accelerating their push into the market. Market Kurly needs to solidify its position."

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

Yeonhee Kim edited this article
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