Summary
Only one company is set to newly list on the KOSPI or KOSDAQ in the second week of July. This is a sign that the slump that gripped Korea's IPO market throughout the first half of the year is carrying straight into the start of the second half. What matters more than the drop in the number of listings itself is the fact that the gap in valuation expectations between issuers and investors is not narrowing.
The Full Story
In the first half of this year, Korea's IPO market showed a notably subdued trend compared with previous years. July is typically a busy season for offering schedules, as first-half earnings are finalized and a lineup of large second-half deals awaits, but this year the market is unusually quiet, with only one company scheduled to list in the second week.
What this number really signals isn't a drought of liquidity. Funds in the market are still ready to flow into IPO subscription accounts. The problem is price. The gap remains wide between the valuation that issuers and lead underwriters want and the valuation that institutional investors and retail investors are willing to pay. As long as that gap doesn't close, companies preparing to list have little choice but to push back their schedules or scale down their offering size.
Structural Background
The root cause of this trend is interest rates. When the benchmark interest rate stays elevated, the discount rate used to convert future profits into present value rises, and this weighs even more heavily on the offering-price valuation of growth-stage companies preparing to list that have yet to post clear profits. On top of this, wariness persists over the burden of shares becoming available for trading after listing — the so-called overhang issue. Concerns that stakes held by the largest shareholders and venture capital firms could flood the market once lock-up periods expire are feeding through into conservative offering-price setting as early as the institutional book-building stage.
Stock (Ticker) and Industry Sector Impact
- Mirae Asset Securities - As one of the top houses by IPO underwriting performance, a decline in the number of listings translates directly into weaker underwriting fee income in its investment banking (IB) division
- NH Investment & Securities - As one of the houses with a large volume of lead-underwritten offerings, deal delays and withdrawals are a factor that increases the volatility of its quarterly IB earnings
- Samsung Securities - With a retail-based IPO subscription channel, a decline in the number of subscriptions itself also affects related brokerage and fee revenue
- Korea Investment Holdings - As the parent of Korea Investment & Securities, a contraction in the IPO underwriting pipeline could also spill over into the holding company's earnings
Bullish vs. Bearish Scenarios
The bearish scenario holds that this slump is structural. Unless interest rates come down, the gap in offering-price expectations will not naturally resolve, and continued listing withdrawals and postponements by companies preparing to go public would weigh on securities firms' IB earnings throughout the second half. The bullish scenario, by contrast, views the current quiet spell as a temporary lull. Companies that postponed listings in the first half could bunch up in the second half, particularly toward the fourth quarter, in which case the IPO subscription market could regain momentum quite quickly. Even in that scenario, however, it's worth noting that a bunched supply of new listings hitting the market at once could increase post-listing price volatility for individual stocks (tickers).
Investor Action Points
- Check the preliminary listing review filing and approval schedules of upcoming large-cap IPO candidates to gauge whether the second-half offering pipeline is actually resuming
- Compare institutional book-building competition ratios and whether offering prices are being set at the top of the price band across individual deals, to see whether the market is still pricing conservatively
- Track the trend in investment banking division revenue in the quarterly earnings releases of securities firms with a high share of IB fee income
- Monitor the schedule of benchmark interest rate decisions alongside market rate levels to gauge when the discount-rate burden might ease
This article is automatically summarized and analyzed based on the original news report. View original (Yonhap News Securities)
