SOUTH Korea’s equity capital markets are booming, with the volume of initial public offerings set to reach a record high this year as companies rush to raise funds against a backdrop of less red tape and robust investor demand.

After relatively staid activity for the past several years, signs of revival began late last year when the Samsung Group listed two of its key units for the company’s looming succession.

Activity has picked up since as the lure of higher stock prices and relaxed listing rules tempt more companies to market.

Strong investor demand and more relaxed rules help encourage a rush of flotations

Although much of the limelight has been stolen by the Hong Kong and China markets, Korea Exchange expects 2015 will rank as the best year for volumes.

Despite volatility sparked by Greece’s debt turmoil and China’s market meltdown, six companies went public last month, including Innocean Worldwide, Hyundai Motor’s advertising arm, which alone raised $300m. That comes after 12 deals in June that raised a combined $716m on the back of solid investor demand.

Korea Exchange expects 20 companies to go public on the main bourse and 100 to be listed on the junior, tech-heavy Kosdaq.

“There is pent-up demand for IPOs after several years of stagnation,” says Yoon Ki-joon, a director at Korea Exchange. “More companies are tapping the market as listing rules have been eased and stock prices have been levelled up.”

During the first half of the year, there were 18 new listings worth $992m in Korea, compared with six deals worth $339m a year earlier, according to Dealogic. Six — including Mirae Asset Life Insurance and NS Home Shopping — were listed on the main bourse, while the rest went public on the Kosdaq.

All the deals were below $500m and bankers doubt this year will see any big deals such as Samsung SDS’s $1.1bn listing in November and Cheil Industries’ $1.4bn deal in December. Still, they were heavily subscribed by investors looking for higher returns amid abundant liquidity as the benchmark Kospi index has gained about 8pc year-to-date after hitting an all-time high in April, while interest rates have been cut to a historic low of 1.5pc. Shares in Cheil have more than tripled from their float prices, while those in Samsung SDS have gone up by more than 50pc. New offerings in the first half delivered average returns of more than 50pc, according to market researcher FnGuide.

Companies and investors have been encouraged by the bullish Kosdaq, which has gained more than 40pc year-to-date and scaled its highest level in seven years earlier last month as President Park Geun-hye promotes entrepreneurship and tries to shore up start-ups through her ‘creative economy’ campaign.

Investment bankers say more than 30 biotech and pharmaceutical groups are preparing for a float this year, while about 18 foreign companies, mostly Chinese, are looking to get listed in Korea as Korea Exchange actively courts foreign listings.

The listing guidelines were recently tweaked to woo companies with strong growth prospects in areas such as the internet, healthcare and biotechnology, allowing them to go public even though their financial status falls short of the existing listing rules.

Geno Focus, an enzyme developer that was listed on the Kosdaq in late May, has been the best performer, with its shares nearly quadrupling from the IPO price. The $12m offering was 1,200 times subscribed, attracting $1.4bn of demand. Corestem, a stem cell therapy provider, has seen its stock price more than double since its mid-June IPO, which was more than 750 times subscribed. Both SK D&D — the SK Group’s property development unit — and Kyongbo Pharm saw their stock prices more than double on their trading debut.

“Most of the recent IPOs have been successful, delivering handsome investment returns,” says Won Sang-pil, an analyst at Yuanta Securities.

Their bullish performance sets up a stronger second half, when about 60-70 midsized deals are expected to raise a combined Won2.5tn ($2.1bn), according to Yuanta.

“It is good for the companies because the lowered regulatory hurdles make it easier for them to list,” says Mr Won at Yuanta. “But we are likely to see quite a few troublemakers among the newly listed firms in two to three years.”

Published in Dawn, Economic & Business, August 3rd, 2015

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