Oct. 22 (Bloomberg) -- South Korean companies may begin cutting prices in initial share sales because investors are concerned the stock market rally may falter, said Samsung Securities Co., the nation’s largest securities company.

“With the market demanding big discounts, more IPOs could be digested if issuers offered significant discounts,” Kim Byung Chul, director of the corporate finance group at Samsung, said yesterday in a telephone interview from Seoul. “Issuers and underwriters will start reflecting market reality in valuations of equities in the first half of next year.”

Posco Engineering & Construction Co. this week scrapped what would have been the biggest IPO by a South Korean company in three years because it couldn’t get a high enough price. Kim said investors are questioning whether the benchmark Kospi index’s 46 percent gain this year can be sustained. The gauge slumped 41 percent in 2008.

The rally has helped companies in South Korea raise 2 trillion won ($1.7 billion) in initial share sales so far this year, compared with 810 billion won for the whole of last year, according to Bloomberg data.

“The market was overheating in the first half, so issuers became aggressive in pricing,” Kim, 41, said. “Now, investor sentiment just isn’t good.”

Kim’s team at Samsung, the No. 1 underwriter for initial equity sales in South Korea this year, arranged Jinro Ltd.’s IPO, the country’s biggest in 2009. Jinro, South Korea’s largest traditional liquor maker, raised 590.4 billion won this month, selling stock at below the marketed range. The range had already been lowered from the initial targeted prices.

Posco Engineering

Posco Engineering, a unit of South Korea’s largest steelmaker, sought to raise as much as 1.08 trillion won in the biggest IPO by a South Korean company since Lotte Shopping Co. sold 3.4 trillion won of stock in 2006 to list its shares in London and Seoul. The Pohang-based builder canceled the sale plan on Oct. 20.

Bank of America Merrill Lynch and Daewoo Securities Co. were the sale coordinators for Posco Engineering.

Tong Yang Life Insurance Co., the first South Korean life insurer to list shares, slumped 17 percent from the offer price on its first day of trading on Oct. 8, after raising 340.4 billion won selling stock at the bottom of the offered range.

“There is a high possibility that companies planning IPOs will reschedule their plans, spreading offerings through next year.”

SK C&C Co., affiliated with South Korea’s largest mobile- phone operator, aims to sell up to 480 billion won of stock to list its shares in November. Korea Power Engineering Co., part of the country’s biggest electricity producer, on Oct. 19 delayed its IPO of as much as 186.5 billion won by two months to December.

“Major deals will be closing soon,” Kim said. “Things don’t look too bad as we go forward since there will be an appropriate amount of stock to be absorbed in the market.”

To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net

Last Updated: October 21, 2009 20:41 EDT