Anna Jiwon Park has been covering the politics at The Korea Times since the summer of 2024, when she joined the press pool for the Office of the President in Korea. Prior to that, she spent about five years reporting extensively on financial markets, regulatory authorities and the financial industry. She joined The Korea Times in 2019 after spending eight years as a broadcast journalist at Arirang TV, Korea’s leading global broadcaster, covering politics, defense and culture.
Kakao affiliates' domineering over securities firms for lucrative IPOs?
The main page of Kakao Bank's mobile app is seen on a cellphone screen. / Yonhap
By Anna J. Park
Kakao criticized for arbitrary use of power in its affiliates' IPO deals
By Anna J. Park
While Kakao's key affiliates ― Kakao Bank, Kakao Pay and Kakao Page ― all plan to go public sometime in the upcoming year, the mobile IT giant is accused of wielding power over local securities firms that have been hoping to ink IPO deals to serve as underwriters.
Earlier this month, Kakao Bank selected KB Securities and Credit Suisse as their main underwriters for the IPO, following November's bidding competitions among about eight major brokerage houses including NH Investment & Securities, Mirae Asset Daewoo, Morgan Stanley and UBS.
Once Kakao Bank tapped KB Securities and Credit Suisse as its main underwriters for its IPO, then Kakao Pay, the mobile-based payment settlement arm of Kakao, suddenly changed its main underwriter firm, canceling its previous contract with KB Securities. Back in September, Kakao Pay chose KB Securities as its IPO management company along with Goldman Sachs, Samsung Securities and JPMorgan.
As Kakao Pay retracted its decision, Samsung Securities became the representative underwriter for the IPO process of Kakao's payment affiliate, while KB Securities' IPO team in charge of Kakao Pay had to hand over to its competitor the work it had been doing for the past few months.
According to industry sources, KB Securities had not been given a prior notice or warning about the possibility its IPO deal with Kakao Pay could be canceled, if the brokerage house were also selected as the main IPO underwriter for another Kakao unit. That's why some market insiders were raising eyebrows about the mobile tech giant's “unprecedented move,” criticizing Kakao for its arbitrary use of power, ignoring common market practices and basic ethics.
Regarding such criticism, Kakao Bank and Kakao Pay remain tight-lipped on the matter.
“There's nothing we can't say further about the matter. What we can say is that the bank has chosen the best underwriter firm based on their capacities,” an official from Kakao Bank said by telephone.
Regarding why Kakao Pay suddenly canceled its previous contract with KB Securities once the securities firm was selected as the main IPO management company for Kakao Bank, an official from Kakao Pay added no further comment.
Some even speculate whether KB Securities could have won the mobile bank IPO's main underwriter role in the first place, as KB Kookmin Bank is one of the major shareholders of Kakao Bank. KB Kookmin Bank owns about a 9 percent stake in the internet bank. Although Kakao Bank explained that the IPO underwriter deal was only based on brokerage firms' capacities, some market insiders are questioning whether the evaluation was completely fair in the end.
According to related local law, a securities firm cannot represent a firm's IPO if the brokerage company directly owns over 5 percent of the firm's shares, or any affiliates of the securities firm have over 10 percent of the newly listed firm's shares.
Because of this law, Korea Investment & Securities ― an affiliate of Korea Investment Holdings owning more than 30 percent of Kakao Bank's shares ― is unable to serve as an underwriter for the internet bank's IPO.
What also draws more layers of criticisms is that Kakao Bank appointed a key officials from Korea Investment & Securities ― the affiliate of the mobile bank's major shareholder company ― as an internal judge to evaluate bidding presentations for the IPO underwriter role. Industry insiders say Kakao Bank's move was unfair, as it is viewed almost as a taboo for a company official to observe competitor companies' bidding presentations.