Korean stocks face overhang as 230 mil. shares come off lock-up

Nearly 230 million shares in listed companies are coming out of lock-up restrictions this month, raising concerns about a potential overhang in the stock market, industry officials said Wednesday.

The mandatory lock-up system bars certain shareholders, including major shareholders, from selling their holdings for a specified period after a company goes public. The restrictions are designed to prevent a sudden influx of shares from weighing on other investors. Once the lock-up period expires, they become freely tradable.

A large block hitting the market can prompt investors to sell ahead of the expected increase in supply, putting downward pressure on a stock and potentially triggering further selling. That is the dynamic behind what investors call an “overhang.”

The risk is more pronounced for companies whose shares are already trading well below their initial public offering (IPO) prices. If a sizable amount of newly unlocked stock is sold into a weak market, it can add to the selling pressure and deepen losses for existing shareholders.

A total of 229.48 million shares in 38 listed companies are coming out of lock-up in September, according to the Korea Securities Depository. Of those, 119.49 million are from five companies on the benchmark KOSPI, while 109.99 million shares are from 33 companies on the tech-heavy Kosdaq.

On the KOSPI, internet-only bank Kbank had the largest single release, with 81.8 million shares becoming available for trading on Sept. 5, equivalent to about 20 percent of its outstanding shares. Kbank has continued to trade well below its 8,300 won IPO price, closing at 5,550 won on Wednesday, or 33.1 percent below the offering price.

On the secondary bourse, medical device maker Osang Healthcare had 8.49 million shares, or 59 percent of its outstanding stock, unlocked on Sunday. Its shares, which were offered at 20,000 won in the IPO, closed at 7,000 won Wednesday.

Two other firms are also set to have more than half of their outstanding shares become available for trading in the coming days. Bitcoin treasury company BitPlanet will have 11.77 million shares unlocked Sept. 24, while biomaterials maker J2K Bio will see 3.3 million shares, or 56 percent of its outstanding stock, come free Sept. 25.

Analysts cautioned, however, that the number of shares coming out of lock-up does not automatically translate into the amount that will actually be sold.

It depends in part on who holds the shares. Major shareholders seeking to retain control may continue to hold their stakes even after the restrictions expire. Financial investors and venture capital firms, by contrast, may have a stronger incentive to sell because they typically hold their investments with an eye toward realizing returns.

“Investors need to look not only at the number of shares being unlocked, but also at the likelihood that existing shareholders will sell and the stock’s normal trading volume,” said one industry official.