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KakaoBank's IPO draws $2 tn in bids despite valuation debate

The banking platform looks set to become South Korea's third-largest listed bank

By Jul 22, 2021 (Gmt+09:00)

KakaoBank's IPO draws  tn in bids despite valuation debate
The initial public offering of South Korea's KakaoBank has drawn the largest-ever amount of bids from institutional investors for a domestic listing, worth 2,500 trillion won ($2.2 trillion), shrugging off valuation concerns about the country's largest internet-only bank.

The strong demand for the unit of the dominant mobile messenger operator Kakao Corp. comes just as its affiliate Kakao Pay Corp., 45% owned by China's Ant Group, delayed its August listing following a regulatory warning against its IPO guidance.

KakaoBank, set to become South Korea's first listed internet-only bank, was 1,700 times oversubscribed, attracting bids from about 1,800 institutions at home and abroad during its July 20-21 bookbuilding process, according to investment banking sources on Thursday.

Given the competition, the banking app will likely price its shares at the top of the indicative range of 33,000 and 39,000 won, putting its market value at 18.5 trillion won.

Once listed on the Korea Exchange on Aug. 6, the four-year-old banking platform is expected to rank the country's third-largest financial services firm just behind KB Financial Group at 21 trillion won and Shinhan Financial Group at 19 trillion won.

The bid amount eclipsed the previous record of 2,417 trillion won set by SK IE Technology Co. The battery materials maker's IPO was 1,883 times oversubscribed by institutional investors in April of this year. 

If priced at the top of the range, KakaoBank will raise 2.55 trillion won from the public offering and become the country's third-largest IPO, after Samsung Life Insurance Co.'s 4.9 trillion won offering in 2010 and game developer Netmarble Corp.'s 2.7 trillion won debut in 2017.

Despite the ongoing debate over its valuation, investors are betting on further growth in the banking platform, focusing on its much smaller operating expenses than the traditional banks and its rapid penetration into the household loan market in the contactless trends.

Launched in July 2017, KakaoBank claims 16 million as its customers, about one-third of the country's 50 million population. In particular, its market share in the age group of 14 and 19 reached almost 40%.

Last week, Moody's said that KakaoBank's IPO could help push its share in the country's won-denominated loans market from the current 14% to 65% over the next one and a half years. 

Its IPO guidance is based on 7.3 times its net asset value, far above the average price to book ratio of listed Korean banks at below 0.5. It will receive subscriptions from retail investors on July 26-27.

Kakao Corp. is the largest shareholder with a 31.62% stake, followed by Korea Value Asset Management Co. with 26.97%. Kookmin Bank, the country's top lender under KB Financial Group, owns a 9.3% stake.

KB Securities Co. are the bookrunner for the domestic portion. Korea Investment & Securities Co, Hana Financial Investment Co. and Hyundai Motor Securities Co are joint underwriters.
KakaoBank's IPO draws  tn in bids despite valuation debate

DOWNWARD REVISIONS

Earlier this week, Kakao Pay, a loss-making mobile payment app, became the third Korean company within a month requested to adjust its IPO prospectus. To follow the regulators, the fintech platform is postponing its stock market listing to around October of this year, which the company said will delay its new business launch as well.

In that regard, an official of the Financial Supervisory Service (FSS) warned against inflated valuations of the recent spate of IPOs which failed to reflect their business fundamentals.

"If the capital raising through the IPO is such an important event for the company, it should have taken a conservative approach to its IPO in terms of the price range and other factors," the regulatory official told Market Insight, the capital news outlet of The Korea Economic Daily.

"An increasing number of investors are reporting investment losses from the overvalued IPOs. We as a regulator cannot take a wait-and-see attitude." 

Kakao Pay had sought to price its shares at between 63,000 won and 96,000 won to sell new shares only in the IPO for as much as 1.63 trillion won. The guidance was below its initial estimate of 73,700-96,300 won, briefly disclosed to the market in April of this year.
 
Kakao Corp. and Ant Group are the only shareholders of the mobile app with a stake of 55% and 45%, respectively. They will remain top shareholders with diluted ownership after the IPO. The Chinese financial services group had pumped about $200 million into the fintech platform between 2017 and this year.

Earlier this month, South Korean game developer Krafton Inc., one of the country's blockbuster IPOs in the coming weeks, cut its IPO price range following a regulatory request.

Likewise, COVID-19 test kit maker SD Biosensor Inc. lowered its IPO band by 40% from the initial guidance, as advised by the regulatory FSS. It made a modest market debut last Friday, defying market expectations that it would repeat the first-day rallies of recent high-profile IPOs.

Write to Jin-seong Kim and A-Young Yoon at jskim@hankyung.com

Yeonhee Kim edited this article.

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