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Kakao Pay slips on profit-taking after strong KOSPI debut

China’s Alipay may sell part of 3.7 million shares, 82.1% of the number of Kakao Pay shares ready to trade

By Nov 04, 2021 (Gmt+09:00)

Kakao Pay’s listing on the Kospi on Nov. 3
Kakao Pay’s listing on the Kospi on Nov. 3

Kakao Pay Corp. ’s stock tumbled after a strong debut on the South Korean main stock market as investors booked profits, keeping an eye on if the company’s No. 2 shareholder Alipay of China cuts some of its stakes.

Kakao Pay lost as much as 14% to 166,000 won in the early afternoon on Nov. 4, far underperforming a wider market with the Kospi rising up to 1.2%.

The Kakao Group’s payment services unit made a stellar trading debut in the previous session with its share opening at 180,000 won, a double of its initial public offering price of 90,000 won. The stock rose 7.22% during the day to close at 193,000 won as investors bet its fintech platform will change the landscape of the domestic financial industry. Its market capitalization stood at 25.1 trillion won, topping the market cap of former No. 1 lender KB Financial Group’s 23.4 trillion won.

Foreign investors, however, sold a net 198 billion won on the day, according to the Korea Exchange.

WILL ALIPAY SELL?

Alipay held 82.1% of the number of Kakao Pay shares ready to trade. The number was estimated at 4.5 million on the day of its listing, according to Market Insight, the capital news outlet of The Korea Economic Daily. Among the total, Alipay Singapore Holding Pte. Ltd. had some 3.7 million shares.

Kakao Pay said Alipay was expected to keep the stocks for a longer-term since it is a strategic investor. But the popular Chinese payments app owned by Jack Ma’s Ant Group is predicted to take profits anytime, given growing uncertainty in South Korea’s stock markets and tougher regulations on the local big tech firms, analysts said.

Alipay committed to the lockup clause only for a part of its holding, pledging not to sell a 27.2% stake for six months following the IPO, indicating the shareholder may cut some of its stakes. Its stake will fall to 10.7% from 39.1% if the company sells all of Kakao Pay shares ready to trade.

“They may have left the door open for repatriation of its investment by keeping the minimum stake to maintain a major shareholder status and selling the rest,” said an investment banking industry source. “They may not sell the stocks in a short term, but any signs of sharp rises or falls could prompt them to dump them.”

Kakao Pay locked up 59% of shares allocated to institutional investors. Among domestic financial institutions, 92.3% committed to the lockup clause, while 26% of foreign investors made such commitments.

SUCCESSFUL IPO

Kakao Pay attracted huge demand from institutional investors during the bookbuilding with strong growth potential even as the company postponed the IPO twice and cut its listing price by 6%, analysts said.

The fintech platform founded in 2014 had a cumulative number of subscribers was 36.5 million with 20 million of monthly average users (MAU) as of the end-June.
Kakao Pay slips on profit-taking after strong KOSPI debut


Kakao Pay has been expanding customers and services based on KakaoTalk, allowing users to make payments and money transfers through the mobile messenger giant without installing a separate app.

Kakao Pay Securities, a brokerage owned by Kakao Pay, is set to launch its mobile trading system (MTS) next year to maximize benefits from KakaoTalk. Kakao Pay Securities is known to be preparing a simple stock trading service in KakaoTalk and an MTS with additional functions to be applied to a Kakao Pay app.

Kakao Pay is slated to make inroads into the insurance business, starting from lower-end products such as a policy for a short-term and expanding to profitable products including annuity insurance.

The company and KakaoBank Corp. are in charge of Kakao Group’s financial businesses including banking and credit cards. The group is more competitive than conventional financial companies thanks to its platforms.

The market cap of the country’s top brokerage house Mirae Asset Securities was 6.4 trillion won and one of the No. 1 non-life insurer Samsung Fire & Marine Insurance was 11.6 trillion won. The market cap of Kakao Pay was much higher than their combined market cap although it is difficult for Kakao Pay to make money only from payments and money transfer services. Its corporate value reflected investors’ hopes on the expansion of the platform, analysts said.

Some were concerned over possible competition between KakaoBank and Kakao Pay.

But Daishin Securities’ banking analyst Park Hye-jin played down such worries.

“Kakao aims to build its own alternative credit rating model based on the Pay’s payment and customer behavior data and the Bank’s deposit and loan data,” Park said. “It is reasonable to see the Bank and the Pay as the two pillars of Kakao’s financial universe rather than direct competitors.”

With Kakao Pay’s successful listing, the market caps of Kakao Group’s listed affiliates totaled 117 trillion won, the fifth-largest among the country’s major conglomerates.

Investors, however, stayed cautious of overvaluation, given regulation risks. Its fees from its services such as payments could be hit by the government policies. Some brokerage houses’ target prices are far lower than the current stock prices. For example, KTB Investment & Securities Co. set Kakao Pay’s target price at 57,000 won.

Write to Ye-Jin Jun, Hyun-Woo Lim, Jin-Woo Park and In-Hyeok Lee at ace@hankyung.com

Jongwoo Cheon edited this article.

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