Reporter's Notebook Who really is real winner amid 2020 IPO craze
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By Anna J. Park
The year 2020 has witnessed overheated investor interest in initial public offerings (IPO), setting a number of records.
Up until spring, when local stock markets were slowly recovering from the plunge in mid-March due to the COVID-19 outbreak, experts worried that IPOs would not be as lucrative as last year after many companies withdrew or delayed their schedule for going public.
The initial rather depressed atmosphere showed signs of turnaround in June with SK Biopharmaceuticals' successful debut on the benchmark KOSPI. Based on historically-low interest rates and ample liquidity amid the pandemic, the stock of the biopharma SK affiliate attracted about 31 trillion won ($28.5 billion) in its subscription process, a record high for an IPO here.
But this was just the start of the IPO craze. Kakao Games attracted 58.5 trillion won in September, while Big Hit Entertainment saw 58.4 trillion won in subscriptions the following month.
In total, 300 trillion won flocked to 76 companies' IPO subscriptions for a stock allotment at brokerage houses, nearly triple that of last year, which saw the same number of firms going public.
Looking at the unprecedented frenzy, people need to ponder who really makes a fortune out of the craze in the capital market.
Most big IPOs saw a stock allotment competition ratio of over 1,000:1, meaning that unless a person puts billions of won into the subscription, the offering does not provide as much in gains as could be expected from such an outwardly overheated atmosphere.
Thus, before joining an IPO craze by depositing huge sums of borrowed money and ending up with a miniscule profit, they need to ponder who the real winner is.
Market insiders point out that the real beneficiaries of the overheated market are the major shareholders ― either the founder of the company or its key personnel who join in the early days ― and financial investors such as PEFs, which had the insight or chance to participate in the company's pre-IPO growth period.
“In fact, the real winners of successful IPOs are the listed company's founders, major shareholders and financial investors with a significant portion of equity. That's why we often hear of cases where a key employee of a newly listed company quits their job only a few days or weeks after the IPO, as they have earned a fortune with their stock options,” a market insider said on condition of anonymity.
“Now we are seeing many retail investors rushing to the over-the-counter (OTC) markets to buy unlisted stock before their IPOs, after learning that they cannot gain much from the actual IPO. However, what they do not know is that professional financial investors usually insert various conditions on their investments to avoid as much risk as possible,” the insider said, adding that retail investors without such information could be exposed a heightened level of risk by unlisted companies.
Market experts urge retail investors to conduct thorough research before investing into unlisted stocks to avoid risk, and to buy them when they are undervalued by the market.
“An ability to recognize undervalued stocks is what is needed for retail investors to be successful, and that is the real meaning of investment,” the insider explained, adding that short-term speculative moves of selling after the first few days of an IPO bubble is not what IPO investment should look like.