Will IPO market heat up again this year?

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IPO-planning companies lower corporate value to appeal to investors

By Anna J. Park

While a number of big-named companies are awaiting their IPOs during the second half of this year, questions remain whether their listing plans will succeed amid the unstable global market conditions.

The first half of the year was a period of disappointment for major IPOs. Despite their initial plans to go public earlier this year, most big-name companies' IPO plans had to be canceled, as seen in the cases of Hyundai Engineering, SK Shieldus and One Store, as they failed to convince investors of their desired corporate value.

Putting such setbacks behind, many major companies, such as Hyundai Oilbank, Kurly, SOCAR, CJ Olive Young, K bank and more, are planning to go public during the second half of this year. So far, nearly 50 corporations have submitted their requests for preliminary IPO evaluations to the Korea Exchange (KRX), while a total of 17 companies are currently conducting their book building processes, during which institutional investors' bids are collected.

Market experts say that while the global macroeconomic environment still remains unfavorable for listing companies, local IPO market conditions could improve during the second half, as companies wishing to go public are presenting more reasonable corporate value, removing price hype.

“Now we see many cases of companies that had withdrawn from their previous IPO procedures to lower their desired corporate value substantially to proceed IPO plans again,” Park So-yeon, an analyst at Shinyoung Securities, said. “Despite the lowered corporate value, these companies seem to put their priority on completing the IPO process this year,” the analyst added.

In addition to many companies offering lower corporate value, the companies are also voluntarily limiting the number of stocks available on listing day, embracing longer lock-up periods.

According to a recent report by DB Financial Investment, the proportion of shares available for circulation by recently listed companies has decreased to 30.1 percent this year, from 38.8 percent in 2020 and 33.4 percent in 2021. This decrease means more financial investors of early phases of the firms' initial investment rounds have embraced longer lock-up periods.

“Because of the efforts to reduce the number of available stock on listing day, investment sentiment for IPOs seems to have somewhat recovered by June,” Yoo Jin-hyung, an analyst at DB Financial Investment, pointed out, adding that subscription competition rates for IPO companies have also been increasing lately.

Despite these efforts on the part of IPO-planning companies to appeal more to the market, ongoing geopolitical uncertainties and global concerns over recession have put downward pressure on the local stock market.

However, companies that yield solid profits with convincing business models have still succeeded in raising ample capital through going public in the first half of the year.

A total of 50 companies went public during the first half of the year; 30 of these, not including SPACs, REITs and KONEX-transferred companies, logged 39.2 percent in profitability as of the end of June, compared to their initial listing prices. Their rate of return is also much better than the main benchmark KOSPI's return of minus 21.66 percent during the same period.