Korea Exchange seeks to get bigger through IPO

Mergers and acquisitions, stake swaps, cross-listings to be pushed

By Kim Da-ye

The Korea Exchange (KRX), operator of the nation’s stock markets, will conduct an initial public offering (IPO) in the near future to increase its global footprint through stake swaps and cross-listings with, and mergers and acquisitions (M&As) of bourses in other countries.

The KRX will also get tougher with delinquent members including foreign brokerages, starting with Deutsche Bank, which had parts of its operations suspended together with having a big fine imposed on it by the bourse operator for insider trading.

“Going public is a matter of survival,” Kim Bong-soo said Friday during an interview marking his first anniversary as chief of the Korean bourse.

“We need to get bigger in order not to be left behind in the new competing order of the global capital market that will arrive in three to four years,” Kim said. “We have to have an IPO before it is too late.”

Korea’s stock market is the world’s 17th largest in terms of market capitalization. Kim is the first former brokerage firm CEO to take the helm of the bourse operator in its 53-year history.

Referring to M&As between stock markets, Kim didn’t reveal any plans but noted that size matters. “If we don’t get bigger, we will get relegated to a small stock market in the corner of Asia,” he said. “With an IPO, we will be able to save precious months to get our value assessed for M&As, stake swaps and cross-listings with other bourses.”

Kim said that a Goldman Sachs executive, a former chairman of the U.S. Securities and Exchange Commission, once asked him if he would consider selling shares of the bourse.

“I was interested. But we do not have any shares to sell, and so no way to sell them. The KRX trades both stocks and derivatives, so it is seen as attractive to investors,” Kim said.

Kim forecast that American and European bourses will be after their Asian counterparts following mergers among them.

“Asian bourses will be their next choices because it could enable round-the-clock trading and Asia has a high growth potential,” Kim said.

He observed that Korea’s rival stock exchanges are already going public, elaborating that Japan is preparing for an IPO.

The funds from the listing could help the KRX jointly set up stock exchanges in developing countries and acquire foreign bourses, Kim said.

On Feb. 9, NYSE Euronext, the product of the merger between New York Stock Exchange and Euronext, and Deutsche Borse confirmed they would merge to become the world’s largest trading platform.

The Singapore Exchange had already been in talks with the Australian Securities Exchange, offering $8.4 billion to take it over.

The KRX says that the number of major stock exchanges will decrease from 16 in 2007 to eight when the recently-announced M&As are completed. Only four or five large bourses will remain by 2015.

It estimates that once the German and New York bourses merge, the market cap of the KRX-listed firms would be only one sixteenth of the giant’s, the trading volume one fifteenth, the revenue one twenty fourth and the operating profit one ninth.

Right now, the Seoul bourse is focusing its globalization strategy in three areas _ setting up new stock exchanges abroad, exporting its IT system and modernizing overseas bourses.

The KRX launched the Laos Securities Exchange in January jointly with the country’s central bank, acquiring a 49 percent stake in it.

It is also working with the finance ministry of Cambodia to set up a bourse within this year. With a $9-million investment, the KRX owns 45 percent of it.

In Uzbekistan, the Seoul bourse agreed to modernize its stock exchange, while exporting its highly advanced IT system to Malaysia and Vietnam. The latter brings the KRX more than 50 billion won in revenue.

Kim says that the KRX sees the next adventure in Eastern Europe, then in West Africa, a reservoir of natural resources, and finally Latin America.

The benefits of such exploration would be to gain a leader status in the global capital market, diversifying its income sources and helping Korean firms, especially brokerages, to reach overseas markets.