Foreign companies are knocking on the door to the Korean stock market. This is because they can earn more funds in the Korean stock market than stock markets in their home countries. In particular, Chinese companies are reportedly considering listing their stocks on the Korea Exchange as an alternative to dealing with the Chinese government’s policies to suspend IPOs. According to the Korea Exchange, a total of 23 companies are pushing forward with their IPOs with Korean securities firms as their lead managers.
Fifteen companies are Chinese, including China Crystal New Material Holdings, a synthetic mineral producer that is scheduled to be listed on the stock market next month after passing a preliminary review; the Hengsheng Group, which specializes in toys and content; Haichuan Pharmaceutical, engaging in the cosmetics business; and Roswell, a Chinese auto parts producer. Besides, British Content Media applied for a preliminary review by the Korea Exchange early last month.
A total of 23 foreign companies, including American companies like PSI International and four others, two Indonesian companies, and one Vietnamese company have signed lead manager contracts with Korean securities firms.
According to industrial sources, the reason why foreign companies push to be listed on the Korean stock market is that stocks listed in the Korean stock market are traded at prices higher compared to the profits of their companies. In particular, biotechnology companies enjoy high stock prices.
At the moment, the average market value per share/earnings per share of biotechnology companies listed on the Korean stock market is 55.5, which is higher than 18.9 of China and 18.1 of the U.S. This has made a foreign company, Triple X, stop trying to be listed on a foreign stock market and switch to the Korean stock market. “Triple X, a Chinese biotech firm, received approval to be listed on the Hong Kong stock market. But after hearing about a big possibility of having higher stock prices, the company is now eyeing being listed on the stock market,” said a representative at the Korea Exchange.
According to the representative, Triple X’s value in the Hong Kong stock market is 600 billion won (US$521 million), but its market capitalization in the Korean stock market is expected to hit about 1 trillion won (US$869 million). In early July, the Chinese government suspended IPOs for the purpose of preventing the stock market from a plunge. This also played a part in creating a boom in being listed on the Korean stock market by Chinese companies. At that time, as the Chinese stock market took a plunge, the Securities Regulatory Commission suspended scheduled IPOs, and has not taken any other measures yet.
After the suspension, three Chinese companies signed agreements with Korean securities firms as their lead managers. Now, some Chinese companies are considering to go ahead with having IPOs in Korea. Some stock market experts say that a second Gosum case may occur, so Korean stock market regulators should be careful about reviews of foreign companies before they are listed on the stock market, and investors about making investment in them. Chinese company Gosum was scratched off the stock market in 2013, as accounting irregularities sparked controversies over the company only two months after the stock market began to trade it.
Since then, negative views began to come out about Chinese companies pursuing IPOs in the Korean stock market. In fact, some foreign companies that contract with Korean securities firms to appoint them as their managers suspended due diligence work due to poor business performances and opaque accounting systems. According to the Korea Exchange, due diligence work has been suspended at three out of 26 foreign firms that signed deals with Korean securities firms to make them their lead managers. Brakes were put on the due diligence of BXT, a Filipino resort company, Catalyst Bio of the U.S., and Chinese furniture maker Fashion Arts, shattering their dreams of being listed on the Korean stock market.