Companies Avoiding Risks Due to COVID-19, IPOs Disappear

Q1 Public Offering Amount 274.4 Billion KRW, 35% Decrease
8 New Listings, Large Deals Disappear
Only Lemon's Stock Price Rises Above IPO Price
Concerns Over Declining Corporate Value Amid Volatility
Series of Listing Withdrawals and Delays

Securities Firms' Operations Nearly Halted, Earnings Plummet
Whether Adjustment or Endurance Depends on Spread Trend

[Asia Economy Reporters: Ko Hyung-kwang, Park Ji-hwan, Koo Eun-mo] Due to the impact of the novel coronavirus infection (COVID-19), the initial public offering (IPO) market has rapidly frozen, with the public offering scale in the first quarter plummeting to one-third of the same period last year. This effect is expected to continue into the second quarter. As investment sentiment deteriorates, companies are increasingly withdrawing or postponing their listings, putting major securities firms on high alert.

According to the Korea Exchange on the 3rd, the total public offering amount of companies that conducted IPOs in the first quarter of this year was approximately 274.4 billion KRW, down to 35% of the same period last year (779.3 billion KRW). The number of newly listed companies was eight, four fewer than last year (12 companies). The first quarter IPO market showed no large deals, with no companies newly listed on the KOSPI market. JNTC raised the largest public offering amount of 121 billion KRW, and small deals in the 10 billion KRW range accounted for half of the total.

At the beginning of this year, the public offering market showed signs of recovery in investment sentiment, with six out of eight companies listed in the first quarter setting prices above the upper limit of the expected public offering price band. However, as COVID-19 spread, the market rapidly contracted. With the stock market plunging, the stock prices of newly listed companies also showed sluggish performance. Based on the closing prices of the previous day, six companies?Wise I-Tech, Seonam, Kenkoa Aerospace, JNTC, PlayD, and NPD?were trading below their public offering prices. Only Lemon saw its stock price rise above the public offering price.

Due to the impact of COVID-19 and the worsening investment sentiment, companies are increasingly withdrawing or postponing their listings. Metanet Mplatform, a marketing service platform company preparing for a KOSDAQ listing, submitted a listing withdrawal application to the Korea Exchange on the 5th of last month, and on the 13th, LS EV Korea, an affiliate of the LS Group, filed a listing withdrawal report. Additionally, SCM Life Science, Novmetapharma, NFC, and Aptamer Science have all postponed their listings one after another.

The continuous withdrawal and postponement of listings by companies is due to increased market volatility, making it difficult to properly assess corporate value. An investment banking (IB) industry official explained, "As domestic stock market volatility increases, there is a growing alienation toward newly listed companies. There is a mood forming to postpone listings due to concerns about not receiving the expected public offering price."

With the public offering market shrinking due to COVID-19, the IPO market in the second quarter is also expected to take a breather. An IPO officer at a securities firm said, "We are lowering the targets we set at the beginning of the year. We believe recovery in the second quarter is difficult and are placing our hopes on the market in the second half of the year."

Originally, it was expected that major companies such as SK Biopharm, Kakao Bank, Hyundai Card, and Hotel Lotte would lead the IPO market and inject vitality this year, but the impact of COVID-19 makes optimism difficult. SK Telecom also planned to pursue the IPO of its subsidiary SK Broadband within the year, but at the shareholders' meeting on the 26th of last month, it expressed that it would be difficult to proceed within the year due to the impact of COVID-19.

Given this situation, IPO departments at securities firms are virtually at a standstill. NH Investment & Securities, a traditional leader in the IPO sector, recorded IPO underwriting results of 13.1 billion KRW (1 case) in the first quarter of this year, a sharp 94.2% drop from 227.6 billion KRW (2 cases) in the first quarter of last year. In the first quarter of last year, it ranked first in the IPO market through underwriting the listings of Dreamtech and Hyundai AutoEver. Other securities firms are in similar situations. Firms that posted results last year in the first quarter, such as Daishin Securities with 181.8 billion KRW (2 cases), Hana Financial Investment with 125.2 billion KRW (2 cases), Kiwoom Securities with 108 billion KRW (1 case), and Samsung Securities with 80.5 billion KRW (2 cases), have no IPO underwriting results in the same period this year.

This is a major negative for some securities firms whose revenue structure centers on the IB division. When the IPO market shrinks, underwriting fees and other commissions inevitably decrease. According to the Financial Supervisory Service, the net profit of 56 securities firms last year was 4.9104 trillion KRW. Of the total commission income of 9.4902 trillion KRW, 36%, or 3.4122 trillion KRW, came from the IB division. In particular, NH Investment & Securities (1.0675 trillion KRW), Korea Investment & Securities (707.7 billion KRW), and Daishin Securities (279.6 billion KRW), which ranked high in IPO underwriting performance last year, are expected to be significantly affected.

A senior official at a major securities firm said, "Looking at the first quarter settlement status of each company, it appears that performance sharply declined especially from March. It seems that a decision will soon be made on whether to take organizational measures such as adjusting the IPO division or to endure and prepare for normalization after the market recovers. Everything depends on the spread of COVID-19," he explained.

This content was produced with the assistance of AI translation services.