Krafton locks up two-thirds of IPO shares amid price concerns

Krafton Inc. has locked up more than 80% of its IPO shares allocated to institutional investors, in a move to prevent mass selling of its shares immediately after its Kospi listing on Aug. 10.   

According to the investment banking industry, the South Korean game developer has completed the allocation of its IPO shares on Aug. 5. Sources said that about 70% of the shares were taken by the institutional investors and the other 30% by the retail investors.

Among the volume that the institutional investors have purchased, 60% were bought by overseas institutions and 40% by Korean institutions. The sources also reported that about 85% of the volume given to the overseas institutions were allocated to long-term funds such as BlackRock, sovereign wealth funds including GIC Private Ltd. of Singapore, Abu Dhabi Investment Authority (ADIA), and Norway’s central bank Norges Bank.

Of the volume handed out to the domestic institutions, more than 90% were allocated to those that included in their share purchase agreements a lockup clause that would obligate them to hold the shares for a certain period of time.

“While we didn’t obligate the overseas institutions to include lockup clauses in their share purchase agreements, they internally have their own investment procedures and guidelines that prevent them from selling the shares shortly after the public listing,” said Krafton’s IPO underwriter.

In other words, the underwriter added, the volume of shares that the institutional investors can sell on the listing day will be limited only to those held by a number of hedge funds.  

Among all the IPO shares to be listed on Aug. 10, including the volume held by the retail investors, the portion that will be available for trading on the day of the listing is now down to about 33% of the total versus the original industry estimate of 41.5%. In terms of monetary value, about 8.5 trillion won ($7.4 billion) worth of shares will be open for trading on Aug. 10.

Krafton’s market cap immediately following the listing of 48,898,070 shares will be 24.35 trillion won ($21.2 billion).

Market analysts say that Krafton is likely to be included in a number of key domestic and global stock indexes such as the Kospi 200 Index and the Morgan Stanley Capital International (MSCI) Index. Such inclusion will likely stabilize Krafton’s stock price in the long run, as the index funds around the world will be purchasing its shares in large volume.  
At the same time, the analysts warn that the existing shareholders who hold about 27% of the IPO share volume can drive down the price if they start selling their shares on the listing day.

Moreover, the securities industry is paying close attention to whether Krafton will be able to overcome the regulatory risk put forward by the Chinese government on the country’s game developer Tencent. After a Chinese state media called Tencent’s popular game an “electronic drug” and a “spiritual opium” on Aug. 3, the share prices of the world’s major game companies have been dropping sharply.

“Tencent’s game under attack by the Chinese state has no linkage to our company or services. We believe that the issue will not impact our business fundamentals, and we will keep tight relations with Tencent not only in China but in other international markets,” said Krafton.

Write to Ye-jin Jun at ace@hankyung.com
Daniel Cho edited this article.