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IPOs

Fintech platform Kakao Pay applies for Kospi IPO

Apr 26, 2021 (Gmt+09:00)

Kakao Pay CEO Alex Ryu
Kakao Pay CEO Alex Ryu

Kakao Pay Corp., a unit of South Korea's largest mobile messaging app Kakao Corp., submitted an application for its initial public offering with the Korea Exchange on Monday, set to become the country's first mobile fintech platform to go public, according to investment banking sources.

Unless there is an eligibility issue for its No.2 shareholder China's Ant Group as a major shareholder, Kakao Pay's IPO is expected to win approval in July at its earliest. 

The IPO will likely take place almost simultaneously with its affiliate Kakao Bank. The mobile banking app submitted an IPO application on Apr. 15. If listed, Kakao Bank will become the country's first Internet-only bank traded on the Korea Exchange, as well.

Ryan, one of Kakao Friends characters
Ryan, one of Kakao Friends characters
The upcoming IPOs of two Kakao units will be followed by other sister companies -- Kakao Entertainment, a digital content provider and Yanadoo, an online education platform also known as Kakao Kids -- which are preparing for 2022 IPOs.

A series of startup IPOs, driven by abundant market liquidity and their firmer share prices, has pushed the Kakao units to speed up their IPO process, the sources said. Last year, Kakao Games Corp. made a spectacular trading debut on the junior Kosdaq market and since then, its market capitalization has doubled to 4 trillion won. Thanks to its firmer share price, it was able to raise 500 billion won in a convertible bond sale last month.

ESTIMATED VALUATION

Kakao Pay' enterprise value is estimated at 10 trillion won ($9 billion), or one-tenth of its projected 2021 annual transaction value of 100 trillion won.

In 2017, Kakao Pay spun off from Kakao Corp, the biggest shareholder with a 43.9% stake, and received $200 million from the second-biggest shareholder Alipay Singapore Holding Pte Ltd., a subsidiary of ANT GRoup. In June 2020, Alipay injected an additional $100 million into the company.

With 35 million users, its corporate value has soared 15-fold since its 2017 spin-off from the mobile messaging app. A fintech company's value is calculated by applying the multiple of 0.1-0.3 to projected annual transactions.

While a majority of Korean brokerage firms put its estimated value at around 10 trillion won, EBest Investment & Securities Co. valued the mobile fintech platform at 18 trillion won, citing its rapid growth.

Last year, Kakao Pay's annual transaction reached an all-time high at 67 trillion won, with revenue doubling to 284.4 billion won. Its net loss sharply narrowed to 25.1 billion won in 2020, versus the previous year's 65 billion won shortfall. With the proportion of money transfers dropping to 50% of revenue from 80%, its bottom line has improved.

"Kakao Pay has been making explosive growth led by online settlements and financial services," said EBest Investment analyst Sung Jong-hwa. "Its growth will further accelerate with the upcoming launch of a mobile stock trading system and digital non-life insurance service. This year, it is expected to reach a break-even point"

It will use the IPO proceeds to expand new businesses such as brokerage and insurance. It is launching a mobile stock trading platform this year. Kakao Pay has branched out its services to brokerage and insurance payments, as well as asset management. In February 2020, the company acquired Baro Investment & Securities, which became Kakao Pay Securities Corp. with over 4 million users as of last month.

In January this year, it applied for the second-half launch of its digital non-life insurance unit, after its attempt in 2019 to set up a joint digital non-life insurance company with Samsung Fire & Marine Insurance Co. fell through.

Currently, Kakao Corp. has a market capitalization of 52 trillion won, with Kakao Games' market value standing at 4 trillion won. Once other Kakao units in the IPO pipeline go public in the following years, their combined market value is expected to reach 100 trillion won. 

Samsung Securities, Goldman Sachs, JPMorgan are lead underwriters of Kakao Pay's IPO, with Daishin Securities working as a co-underwriter.

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

Yeonhee Kim edited this article.

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