Unlisted South Korean companies that have cleared the Korea Exchange's (KRX) review are pushing back their initial public offerings, as they wait to see whether the KOSDAQ market recovers.
Sticking to a fundraising timeline would normally favor moving quickly, given the time the Financial Supervisory Service (FSS) takes to review a securities registration statement. But with most of this year's newly listed stocks trading below their offering prices, analysts say investor sentiment for IPOs is unlikely to recover unless institutional investors abandon their practice of short-term, quick-flip trading.
Of eight companies that received preliminary approval from the KRX since July, only three — Neosapience, Duksan Neolux and Global Technology — have filed registration statements with the FSS, according to the KRX on the 10th. Narrowing the window to approvals granted since August, not a single filing has been made. Companies that pass the exchange's review typically file within one to two weeks, though it varies by company, and must do so within the six-month window during which approval remains valid.
Lablup, which won the fastest approval of any company this year, had sought a quick market debut but decided to wait after discussions with its underwriter, NH Investment & Securities (005940.KS). DTS, which spent 10 months under review because of an unexpected dual-listing issue, had also been expected to move quickly through its offering but has held off on filing for nearly a month since approval. With the FSS scrutinizing filings more closely than in past years, a swift offering process is needed to list within the year — yet a cautious mood is evident among underwriters.
The loosening grip on IPOs is read as a response to a pattern of sharp share-price declines after listing that has become entrenched. Even companies praised for their fundamentals now routinely see their shares fall below the offering price after debut, and that has become the market consensus. According to a tally by The Seoul Economic Daily, of 20 companies that listed on the KOSDAQ this year (excluding SPACs), only three — Cosmo Robotics, MakinaRocks and Madup — closed above their offering prices as of the 10th. All three are tied to artificial intelligence (AI) or humanoid robots.
A slowdown in the first-day price surges has also been taken as a sign of weakening sentiment, weighing on companies' decisions. In the first half of this year, five companies — Steam, Axvis, IMBiologics, Cosmo Robotics and MakinaRocks — recorded a "quadruple," a four-fold gain over their offering price. But starting in June, when the KOSDAQ index began to turn down, even a "double" — a two-fold gain — disappeared, let alone a quadruple. Of seven stocks that listed on the KOSDAQ after June (excluding SPACs), four closed their first day below the offering price. With the IPO frenzy that ran into early this year now gone, the incentive to enter the market ahead of a recovery in KOSDAQ sentiment has diminished.
As a result, some in the securities industry say that even beginning the offering process — setting aside the tougher exchange review — has become burdensome. Underwriters must mandatorily take up a set portion of the new shares issued by the company going public, meaning they have to accept a certain level of valuation losses. An investment banking (IB) industry official said, "It takes considerable effort just to pass the review, and even after approval, the falling market leaves us uneasy," adding, "The valuation losses on the companies we listed this year have piled up substantially, and we're worried it could affect year-end personnel decisions."
Some suggested that the KOSDAQ's recent attempt at a rebound could be a positive factor for a recovery in the IPO market. But given that share prices trended lower after listing even during January to May, when the KOSDAQ was rising, others say a fundamental solution is needed. Another IB industry official said, "Despite regulatory improvements by financial authorities, the mandatory holding commitment ratio for institutions keeps falling, and quick-flip trading on the listing day persists," adding, "We can only hope that mechanisms to encourage long-term investment, including the cornerstone system that takes effect in November, work effectively."
