Omicron fears weigh on 2021 IPO plans

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By Anna J. Park

Little is known about the Omicron variant of COVID-19 other than the fact that South Africa may be at the epicenter of the recent increase in cases of this strain of the coronavirus. No major announcements have been yetmade regarding lockdowns or factory shutdowns.

But market sentiment isn't that favorable with the variant's emergence causing a burst of uncertainty and sending equity markets reeling. This situation could have a grave impact on Korea's initial public offerings (IPO), according to market analysts, Monday.

Despite advances by major biotechnology firms in the development of vaccines, and potentially one that could deal with the Omicron variant, a growing number of countries are tightening travel restrictions; and investors are moving into "safer assets" such as gold or treasury bonds.

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Analysts say while it's too early to judge the impact of Omicron on the local equity market, the new COVID-19 variant could slam the brakes on the economic recovery in major markets, a negative factor in terms of investor sentiment for local companies considering IPOs.

Some domestic companies have already abandoned their scheduled IPOs for this year, amid heightened uncertainty. Local shipping company SM Line withdrew its IPO application after a disappointing two-day evaluation by institutional investors early this month. Handbag manufacturer Simone Accessories Collection also withdrew its IPO plan last month, following a discouraging preliminary subscription result among institutional investors.

Game company Netmarble Neo is another Korean firm that dropped its scheduled preliminary IPO application this month, after the firm submitted its application in late June, when the KOSPI market hit record highs.

"Both external and internal market conditions have induced sluggish stock price movements among some recently listed companies, as well as a recent string of IPO withdrawals. The global economies' general movement towards reducing liquidity, such as tapering, and continuing market corrections in the local market, have led to disappointing performances by newly listed companies," said Na Seung-doo, an analyst at SK Securities.

Next year will be better

The prospects for next year's IPO market look positive, however, according to some company officials who believe there is the possibility that the Omicron variant could be brought under control rapidly thanks to the preparedness of top biotech firms to respond to virus threats. In addition, any continued spread of the Omicron variant may prompt central banks in major economies to reconsider their recent adjustments to tighten monetary policy and delay any future benchmark rate hikes, by maintaining more accommodative monetary easing.

Blockbuster IPOs are poised to make their debuts on local stock markets early next year when they hope market conditions will be more favorable.

LG Energy Solution (LGES), which is expected to go public as early as January, is targeting a corporate value of 80 trillion won, the highest-ever market cap for a newly listed firm. LGES aims to raise 10 trillion won from the IPO, which will also be an all-time high in the history of Korean firms' IPOs. The Korea Exchange (KRX), the country's bourse operator approved LGES's IPO for next year.

Hyundai Engineering & Construction also aims to go public early next year. Twenty years after its foundation, the firm's corporate valuation could be as high as 10 trillion won. Other major companies waiting in line for IPOs next year include Hyundai Oilbank, CJ Olive Young and three major e-commerce delivery platforms: SSG.com, Market Kurly and Oasis. Vehicle-sharing platform SOCAR and Kakao Entertainment are also planning IPOs in 2022.

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