Equity capital market loses steam due to uncertainties

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By Anna J. Park

The country's Equity Capital Market (ECM) seems to be losing steam this year amid continued tensions between Russia and Ukraine on top of already bearish market sentiment, due to tightening liquidity and rising interest rates.

Market experts view that the profits generated from the ECM are likely to be polarized this year, while the total amount of earnings is forecast to shrink from previous years, when the stock market sizzled following the pandemic crash in early 2020. The market mainly involves companies' raising equity capital through IPOs and private placements as well as seasoned equity offerings.

LG Energy Solution (LGES) heated up the IPO market earlier this year. But its prospects are not as bright as they used to be, since a bulk of institutional investors' money is tied to the battery maker due to lock-up commitments. As a result, some experts believe that the peak time for this year's IPOs has already passed with LGES' public offering.

Actually, venture capital firm Stonebridge Ventures' recent IPO move was met with apathetic sentiment from institutional investors during its subscription survey conducted last week. The venture capital firm had to set its public offering price at 8,000 won ($6.70), which is even below the low end of its expected price band.

Fears over rising global interest rates later this year have also prompted investors to opt for companies that generate ample cash now ― especially when it comes to IPOs ― rather than focusing on companies with greater growth potential. Institutional investors have become more astute and may choose not to participate in a company's stock allotment survey if they find that the firm's offering price doesn't remain in their expected value range.

This situation contrasts sharply from last year, when companies with ample growth potential with paltry profits or even losses ― such as Kakao Pay ― could still draw many requests from institutional investors during their IPO processes.

A market insider pointed out that unless there's a well-grounded consensus on growth potential, institutional investors have become more stringent in their assessments of business models presented by companies seeking to go public, as they try to bypass deals that would not likely create additional value for investors.