Samsung Biologics, Bobcat Brave Asia’s 2nd-Worst IPO Market

  • South Korean listings this year set to reach most since 2010
  • Stable Kospi, earnings to lure investors, arranger says

South Korea’s initial public offerings are the second-worst performers among major Asian markets this year. That hasn’t stopped companies from planning more new listings, which are poised to raise the most since 2010.

Following nine listings this year, at least 10 more firms, including Doosan Bobcat Inc. and Samsung Biologics Co., have lined up share sales. As policy makers ease rules, the total issuance this year is likely to be the biggest since 22 companies raised 8.7 trillion won ($7.7 billion) in 2010, Lee Seong Gil, head of listing promotions at Korea Exchange, the nation’s largest, said in an interview.

The companies will be testing investor demand in an export-driven economy that is expanding at less than half its 2010 pace amid the longest slump in outbound shipments on record. The benchmark Kospi index has moved in a narrow band in the past five years. Shares that started trading on Korean exchanges this year have gained an average 10 percent -- beating only Singapore -- while those in China rose fourfold, data compiled by Bloomberg show. Some investors are already balking.

Lee Chai Won, the chief investment officer at Korea Value Asset Management Co. who runs a 2.6 trillion-won fund that outperformed 92 percent of peers in five-year annual returns, says he is staying on the sideline and may consider if the offerings are at an affordable price. "I don’t think it is really booming that much,” he said.

Lotte Group in June shelved what would have been the world’s biggest IPO this year for its hotel unit amid investigations into alleged slush funds and embezzlement. That potentially means more money available for the other planned IPOs.

Korean listings are rising after regulations were revised late last year to allow firms with a minimum of 200 billion won of equity to sell shares to the public, regardless of their financial performance, provided they raised at least 600 billion won. Earlier, only businesses with at least 100 billion won of sales and 3 billion won of earnings in the previous year could tap the market.

Authorities also relaxed rules in June, requiring fewer supporting documents from a Korean company with businesses abroad, making it easier for Doosan Bobcat, which has more than 30 units abroad.

Mirae Asset Daewoo Co. was the most active arranger of Korean IPOs this year with a 22.3 percent market share, followed by Daishin Securities Co. at 20.4 percent, according to data compiled by Bloomberg. Korea Investment & Securities Co. ranked third with 12.1 percent, the data show.

Doosan Bobcat, a maker of compact construction equipment such as excavators and loaders, won approval this month from Korea Exchange for its IPO. The company is raising money to pare debt owed by biggest shareholder Doosan Infracore Co. It is also embarking on an expansion in emerging markets including China and Southeast Asia. It reported record sales of 4.04 trillion won in 2015, of which North America accounted for 70 percent and Europe 25 percent.

Samsung Biologics, which had sales of 91.3 billion won in 2015, applied for IPO approvals earlier this month. It is a unit of Samsung C&T Corp., which operates amusement parks and is also into construction and clothing. It’s part of the Samsung Group, whose flagship company is Samsung Electronics Ltd., the maker of Galaxy mobile phones.

The two companies haven’t yet disclosed the size of their IPOs, pricing or a timeline. Doosan Infracore declined to comment, while Samsung Biologics said it is bound by regulations and can’t comment.

“There’s pent-up demand for IPOs of big companies,” said Lee Jae Won, an analyst at Yuanta Securities Korea Co. in Seoul. “We could see more companies that are part of conglomerates transitioning for the next stage.”

‘Creative Economy’

The easier listing rules are part of President Park Geun Hye’s push for a “creative economy” that nurtures startups or any business with growth potential to revive an economy dominated for decades by family-owned conglomerates. The nation’s 18th president and its first female leader is also seeking to boost efficiency and transparency at so-called chaebols that have cross shareholdings among various units.

“Many companies are posting good earnings and the government is vigorously encouraging them to list their shares as part of the current administration’s slogan of ‘creative economy,”’ said Bae Young Gyoo, managing director for IPOs at Korea Investment & Securities, an arranger for Doosan Bobcat, Samsung Biologics and Netmarble Games Corp. “We are really optimistic.”

Bae “cautiously expects” operating profit at his IPO department will grow 20 percent to 30 billion won this year, a record.

Breaking Free

South Korean equities, stuck near the lowest level versus the world since the 2008 global financial crisis, are ready to break free, according to Huh Nam Kwon, chief investment officer at Shinyoung Investment Management Co. The benchmark Kospi index, which has advanced 4.3 percent in 2016, is near a one-year high.

Kospi profits are projected to jump 45 percent over the next 12 months, data compiled by Bloomberg show. Brokers upgraded Korea’s 2016 earnings estimates for a fourth month since April, according to Credit Suisse Group AG, and Yuanta has predicted stocks to reach a record index of 2,250 this year.

With shares priced at the cheapest relative to global peers in more than a decade, conditions are right for stocks to gain upward momentum, said Huh.

“Investors are closely watching the IPO market, paying higher attention than ever,” Korea Investment & Securities’ Bae said. “The issue of their offering price will be the key factor.”

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