Small caps warm up S.Korea’s chilly IPO market

Small and mid-sized companies are reviving the otherwise chilly IPO market in South Korea, which has been dragged down by weaker-than-expected demand and cancellations of long-awaited, large-cap IPO candidates.

On Wednesday, digital software developer Innorules Co. attracted as much as 1.4 trillion won ($1 billion) in subscription deposits from retail investors, according to people with knowledge of the matter. The stock was 781 times oversubscribed ahead of its October public offering on the junior Kosdaq market.

Investor enthusiasm for Innorules, with a market cap of 64.2 billion won based on the IPO price, was in stark contrast to the wider stock market.

On the same day, the Kospi index tumbled to its lowest level in more than two years. Foreign investors continued their selling spree as the won’s slide to its weakest level since March 2009 cut the value of their Korean stock holdings.

The Kosdaq market hit its lowest point this year on Wednesday.

A decrease in valuations of small and mid-cap stocks is bringing back investors, looking for alternatives to underperforming listed stocks. Particularly, those with less than 200 billion won ($140 million) of a market cap, are drawing interest.

Among them are pharmaceutical capsule manufacturer RP Bio Inc. and injection molding company Model Solution Co., alongside Innorules Co. The three companies were oversubscribed over 1,000 times during their boobuilding process this month.

“Until early this year, most IPO companies stuck to high valuations. But the atmosphere has changed and they are now accepting lower valuations,” said one of the sources.

Solid gains from this year's IPOs encouraged investors to bet on small-cap initial offerings. They have generated an 11.6% return on average since their market debuts as of Sept. 28 market close.

By comparison, the Kospi index has shed almost 30% year to date, with the Kosdaq market down 35%.

Small caps may not be affected as badly as large caps by the won’s decline and foreign sell-offs, said another IB official. Foreign investors primarily target large-cap stocks in Korea.

RP BIO, MODEL SOLUTION

RP BIO received 3 trillion won in deposits from individual investors, exceeding its market cap of 140 billion won. 

Model Solution attracted 5.1 trillion won in deposits, With a market cap of 170 billion won based on the IPO price, it is slated to list on the Kosdaq market next month.

Pharmaceutical manufacturer SunBio Inc. is also joining Model Solution to list on Kosdaq next month. It drew three times more than the required subscription amount from retail investors.

By contrast, two large-cap IPOs this month -- W-Scope Chungju Plant Co. (WCP), a manufacturer of lithium-ion battery separators and KB Star REITs – met with cold responses.

WCP was oversubscribed just 33 times by institutional investors and seven times by individual buyers. It targets 3 trillion won in market value.

Investors also turned a cold shoulder to KB Star. It was 26 times oversubscribed during bookbuilding.

A shrinking pool of IPO candidates is whetting the appetite for small-cap stocks from institutional investors to exhaust their funds ahead of year-end book closing.

In August, Gourmet food delivery platform Kurly and Golfzon County won preliminary approval for their initial public offerings. Last week, South Korea’s first internet-only lender K Bank received preliminary approval for a Kospi IPO. 

But the three companies are considering postponing their trading debuts to next year due to unfavorable market conditions.

Write to Seok-Cheol Choi at dolsoi@hankyung.com
Yeonhee Kim edited this article.