Korea Investment & Securities, NH Securities slammed for IPO fiasco

Lee Ji-hyo, third from right, CEO and co-founder of Fadu, poses with dignitaries from NH Investment & Securities, Korea Investment & Securities and the Korea Exchange (KRX) during a ceremony to mark the listing of the fabless semidoncutor startup on secondary bourse Kosdaq, Aug. 7. Courtesy of KRX

Korea Investment & Securities and NH Investment & Securities are under fire over suspected fraudulent initial public offering (IPO) of a startup company that they served as co-underwriters. It was listed on the secondary bourse Kosdaq in August.

According to industry sources, Wednesday, the Financial Supervisory Service (FSS) is geared toward launching an inspection over whether the IPO was carried out by observing rules of fair practice.

In its inspection, the FSS, the country’s financial watchdog, will be accompanied by the Korea Exchange (KRX), the sole bourse operator that governs benchmark KOSPI and Kosdaq.

The inspection will center on whether Fadu, a fabless semiconductor startup, exaggerated its 2023 performance outlook and whether Korea Investment & Securities and NH Investment & Securities made an upright assessment of such an outlook.

In its pre-IPO documents, Fadu estimated its annual sales to be worth 120.2 billion won ($92.4 million) in 2023, which will be more than twice its 2022 sales at 56.4 billion won.

The forecast boosted Fadu to mark 1.5 trillion won in its IPO value.

The company then shocked investors, Nov. 9, when its performance so far was found to be nowhere close to its yearly sales outlook.

In its first regulatory filing after IPO, Fadu reported sales of 320 million won in the third quarter, plunging by 97.6 percent from a year earlier.

Such disappointment in the July-September performance makes its sales in the first three quarters combined worth merely 18.04 billion won. The amount marked a 44.6 percent fall from the previous year.

The company also struggled with an operating loss of 34.4 billion won in the third quarter, which sharply increased by 715 percent year-on-year.

The firm’s shareholders thus face a heavy chance to suffer loss.

“It is fair to blame the two underwriters for failing to fulfill their duty faithfully and let this nonsense happen,” a Fadu shareholder said, asking not to be named.

Meanwhile, Fadu gained 9.94 percent to close at 19,470 won, Wednesday.

It was priced at 34,700 a day before regulatory filing but dropped to 24,300 on Nov. 9 and tumbled to the 10,000 won range afterward.