Lee Hyo-sik is Finance Desk editor at The Korea Times. He manages finance-related stories on macroeconomics, banks, stocks, bonds, crypto etc. He is passionate about covering what's happening in Korea's financial industry and explaining it to both Korean and non-Korean readers. You can reach him at leehs@koreatimes.co.kr. Your insights and feedbacks are always appreciated.
Jeju Air's IPO may stumble on sluggish market
By Lee Hyo-sik
Jeju Air, Korea’s largest low-cost carrier by revenue, has taken the first steps to become a publicly traded entity this year by asking the stock market operator to check whether it is fit to be listed on the local bourse.
The carrier decided to go public, thinking that its shares will be well received by investors, expressing hope that it will secure enough funds to more effectively compete with the country’s two flagship carriers ― Korean Air and Asiana Airlines.
Jeju Air has been flying high over the past few years riding on the surging travel demand.
Unless Middle East Respiratory Syndrome (MERS) and other unforeseen risks discourage people from traveling in the second half of the year, the company is expected to post a handsome performance in the second half. Low oil prices will also improve its bottom line.
However, some question the timing of the initial public offering (IPO), citing the overall sluggish stock market conditions. The local bourse is widely expected to remain weak throughout the year as many investors stay away from the bourse because of the planned U.S. interest rate hike and the slowing Chinese economy.
They say the carrier may not be able to have its shares listed if the market continues to be lackluster.
The airline, which wants to go public before the year’s end, filed an IPO application with the Korea Exchange, Thursday, asking it to review whether the budget carrier can have its shares traded on the local bourse.
The Korea Exchange will conduct a study and make a decision in October. If passed, the firm’s underwriter, NH Investment & Securities, will invite bids from investors.
“Given its strong performance over the past few years, Jeju Air’s IPO will likely attract keen attention from investors,” said Ryu Je-hyun, an analyst at KDB Daewoo Investment & Securities. “Thanks to low oil prices, it is expected to post relative good results in the second half unless MERS and other unexpected negatives hit the travel industry.”
He then expressed concerns over the recent sluggish stock market, saying that it is uncertain how the market will be when the carrier lists its shares. The equity market unlikely picks up any time soon, weighed down by the planned U.S. rate hike, the slowing Chinese economy and other negatives.
“Nobody knows what the stock market will be like. I think Jeju Air should proceed according to the plan for now,” the analyst said. “But if the market turns out to be really discouraging when the company goes public, it will probably have to readjust the IPO timing.”
A Jeju Air spokesman also echoed Ryu’s view, saying that the company will carefully decide the timing, considering all market conditions.
“We plan to go public in 2015. But if the overall market conditions are unfavorable, we will then have to make a decision accordingly,” the spokesman said, indicating that the carrier may delay the IPO to 2016.
“We will take all the factors into account and decide what to do when we float our shares,” he said.
AK Holdings holds an 84.8 percent stake in Jeju Air, which earned 510.6 billion won in revenue and a 32 billion won net profit. The carrier operates a fleet of 20 Boeing 737-800 planes.