Investor sentiment on Korean IPOs remains chilly in H2

Investors are staying away from South Korea’s initial public offering markets as sentiment remains sour on global interest rate hikes, the sustained war in Ukraine and recession fears amid surging inflation.

A number of companies, which had hoped for market valuations of billions of dollars, dropped plans for listings, although some firms with strong growth potential hit the jackpot.

Local companies raised a combined 14.2 trillion won ($10.9 billion) in the first seven months of the year, more than double the 6.6 trillion won from a year earlier, according to the Korea Exchange (KRX) on Monday. But excluding LG Energy Solution Ltd.’s IPO, the country’s largest listing of 12.7 trillion won, fundraising in the January-July 2022 period shrank to just 1.5 trillion won. 

The number of IPOs also declined with 40 companies, excluding special purpose acquisition companies (SPACs), listing on the main Kospi and the junior Kosdaq, down from 49 firms a year ago.

DREAM ON

Initially, the size of the IPOs this year had been expected to hit record highs, topping 30 trillion won, as more than 10 companies with enterprise values of over 1 trillion won such as Hyundai Engineering Co., Hyundai Oilbank Co., Kakao Entertainment Corp., SSG.COM and Kurly Inc. were lined up for listings.

But the meltdown in the domestic and global stock markets chilled investor sentiment on the local IPO market.

Hyundai Motor Group’s plant engineering and construction unit Hyundai Engineering, Saudi Aramco-backer refiner Hyundai Oilbank Co., South Korea’s homegrown app store One Store Co., and leading security services provider SK Shieldus Co. all dropped their listing plans on weak demand.

The country’s top beauty store chain CJ Olive Young suspended its IPO process, while Kakao Mobility Corp. considered selling stakes held by major shareholders.

SSG.COM, the e-commerce brand of South Korean retail giant Shinsegae Inc., as well as local unicorns such as Viva Republica Inc., the operator of fintech platform Toss, and the No. 1 travel and accommodation platform Yanolja postponed their listings in a move to boost their corporate values through improved earnings rather than IPOs.

Voronoi Inc., a biotechnology startup, and Dae Myoung Energy Co., a renewable energy company, went public with their valuations slashed by more than 40%.

Investor sentiment on the local IPO market is expected to stay sluggish for the time being, industry sources said.

“Until last year, investors placed had placed large orders for major IPO deals from the first day of bookbuilding to get more shares. But most of them waited until the last minute this year,” said an investment banking industry source.

“Failures of major IPOs worth billions of dollars inevitably hurt sentiment on small and medium-sized listings.”

COMPANIES WITH GROWTH POTENTIAL STILL IN SPOTLIGHT

Meanwhile, some companies are still drawing attention, especially in the semiconductor and secondary battery-related sectors. These continue to attract investors with strong growth potential and stable operating profits.

Semiconductor-related companies such as Gaonchips Co., Nextchip Co. and Laserssel Co. hit the jackpot with their bookbuildings more than 1,000 times oversubscribed.

SungEel HiTech Co. and Sebitchem Co. in the battery industry also had successful listings. Lithium battery recycling company SungEel’s bookbuilding was 2,269 times oversubscribed, the highest in the local stock market.

Investors are keeping an eye on W-Scope Chungju Plant Co.’s (WCP) IPO slated for mid-September with an expected market capitalization of up to 3.4 trillion won.

“Money is flocking to companies with clear growth potential and stable profits as investors are focusing more on names showing substantial growth than those with only future growth potential,” said another investment banking sector source.

Write to Seok-Cheol Choi at dolsoi@hankyung.com
Jongwoo Cheon edited this article.