The local initial public offering (IPO) market is going through hard times. Since the beginning of this year, only one company, DSR, was listed back in May, and just one more company, Hyundai Rotem, is expected to join the market before the year ends.
The gravity of the situation is well understood when the numbers of last year and 2011 are taken into consideration. In 2012, the number was six: Huvis, SBI Mortgage, Sajo Seafood, AJ Rent a Car, CJ Hellovision, and GMB Korea. In addition, there were ten more than that the preceding year.
Hyundai Rotem, which was going to list itself on the Korea Exchange this month, has postponed the plan citing dull market conditions. It is expected to be listed between October and November after submitting a securities registration statement reflecting its performance for the first half of this year.
The problem is that it is not easy to maintain the preset IPO price of 26,000 won. Market insiders are pointing out that the stock prices of the listed companies in the same field of business have gone down since the beginning of 2013, and that the IPO price of Hyundai Rotem should be adjusted downward. In that case, the rate of return is cut on the part of Morgan Stanley Private Equity, the second-largest shareholder and financial investor.
In addition, the local lead managers and their foreign counterparts are experiencing conflicts these days. BoA Merrill Lynch has insisted on handling only investment by foreign institutional investors. Managers in Korea such as Daewoo Securities and Woori Investment & Securities are reacting strongly against it.
In the meantime, BGF Retail and Dongbu Life Insurance are scheduled to be listed during the first half of 2014. BGF Retail is working with Samsung Securities as its lead manager. The company is aiming to strengthen its corporate governance structure through an IPO while providing an opportunity for Family Mart of Japan, the second-largest shareholder, to collect its shares.
At present, the market capitalization of BGF Retail is approximately one trillion won and the size of the IPO is estimated at around 200 billion won. Still, experts are saying that the company’s performance for this year will be the most important factor in the corporate valuation process with its operating profits having declined by 35.46% year on year to 59.9 billion won last year.
Dongbu Life Insurance had promised the listing in as early as 2010, when it had increased capital by issuing new convertible preferred stocks worth 120 billion won. At that time, the insurer had said that it would guarantee the conversion price of 12,500 won for the protection of its investors even if the IPO price went down below the issuing price of 12,500 won.
The life insurance company’s net profits are on the rise. The amount had been 14.4 billion won in 2009 but rose to 21.1 billion won in 2010 and 34 billion won in 2011.