IPOs see low offering prices and declining returns in Q1

South Korea’s initial public offerings are seeing lackluster investor interest in bookbuildings this year. Drops in some recent public offering prices don't look good for investment returns and the stock market remains in a bubble, industry watchers say.   

Some 55% of 20 Korean companies that held first-quarter bookbuildings set their public offering prices at the upper end or above the price band, according to a recent report from Eugene Investment & Securities Co. The ratio, reflecting investors’ interest in IPOs, plunged from 86.4% in the first quarter of 2021 and hit the lowest point since 2019 -- the ratio was 80% and 66.7% during the same periods of 2020 and 2019, respectively. 

Some companies set the public offering prices lower than the price bands. Online plus-size fashion store 09Women Co., AI-powered solutions provider MoAdata Co., insurance agent Incar Financial Service Co. and venture capital firm Stonebridge Ventures Inc. set their offering prices 20-30% lower than the bottom end of the price bands for retail investor subscriptions. 

Despite the lowered share prices, returns from public stocks have plunged due to tepid demand for shares after going public. Except for special purpose acquisition companies (SPACs) and real estate investment trusts (REITs), the average investment return from IPO shares during the first quarter was 43.9%. This compares with the record-high 54.9% during the same period last year.

Except for SPACs and relisted firms, eight out of a total of 21 IPOs in the first quarter of this year saw their shares fall below public offering prices. Among the eight firms, seven companies' opening prices started below the offering prices. 

BETTER RETURNS FROM SHARES WITH HIGHER IPO PRICES

The companies of which public offering prices went beyond the upper end of price bands provided high returns to the stock investors. The firms saw high competition in retail investors’ subscriptions and brisk trading of their stocks after listing.   

Some companies, including art auction house K Auction Co., virtual reality content developer SKonec Entertainment Co., plastics manufacturer Assems Inc., semiconductor parts maker BC&C Co. and aluminum manufacturer Sea Mechanics Co., saw their opening prices nearly double the public offering prices. K Auction and Assems set their offering prices in the upper end of the price band, while the others set their offering prices above the upper end. 

Car accessories provider Auto& Co. and industrial robot maker Yuil Robotics Co. are seeing the highest returns, with their share prices more than quadruple and double the offering prices, respectively.

The investment banking industry forecasts the stock market will recover from the second quarter of this year as some companies with market caps of more than 1 trillion won ($820.5 billion) will debut on the public market.

SK Telecom Co.’s spinoff SK Square will hold subscriptions of its app store One store Co., and cybersecurity firm SK Shieldus Co. in May for IPOs. The market cap of One store is between 910 billion won to 1.1 trillion won with the price band between 34,300 won to 41,700 won. SK Shieldus’ market cap is between 2.8 trillion won to 3.5 trillion won with the price band ranging from 31,000 won to 38,800 won.

“One store’s corporate value is said to be a maximum 2 trillion won and SK Shieldus’ is estimated to be 4 trillion won or more. They are worth investing in if the public offering prices are set in the lower end of the bands,” an industry insider said.

The two companies will hold bookbuildings this month and subscriptions for retail investors early next month. Both of their Kospi debuts are set for mid-May.

Car-sharing platform Socar, Kyobo Life Insurance Co. and Hyundai Oilbank Co. are expected to go IPO in the second quarter. Kurly Inc., online grocery delivery service Mark Kurly’s operator, fuel cell developer Bumhan Fuel Cell Co. and corrugated fiberboard maker Taelim Paper Co. will also join the IPO market.

Write to Ye-Jin Jun at ace@hankyung.com
Jihyun Kim edited this article.