IBK, Another Capital Increase in a Month... Burden on Stock Price

[Asia Economy Reporter Koh Hyung-kwang] As IBK Industrial Bank of Korea (IBK) undertakes another capital increase exceeding 400 billion won within a month, there are forecasts that this will negatively impact IBK’s stock price.

According to industry sources on the 19th, IBK held a board meeting on the 17th and resolved a third-party allotment paid-in capital increase worth 412.5 billion won. The issue price per share is 7,171 won, which is lower than the 8,986 won decided in March, and the number of new common shares issued is 57,523,357 shares, nearly double the 29,379,034 shares issued in March. The new shares will be listed on the 18th of next month.

IBK stated that all the raised funds will be used as operating capital, but it is expected that the funds will mainly be used for loans to companies affected by the spread of the novel coronavirus infection (COVID-19).

Previously, IBK also conducted a third-party allotment paid-in capital increase worth 263.9 billion won in early last month.

In response, Hana Financial Investment downgraded its investment opinion on IBK from Buy to Neutral on the same day and lowered the target price by 10% from 10,000 won to 9,000 won.

Choi Jung-wook, a researcher at Hana Financial Investment, explained, "We lowered the target price reflecting the dilution of stock value caused by the additional paid-in capital increase. Although there is about a 14% upside potential in absolute stock price terms compared to the revised target price, considering that the upside potential is very low compared to other banks and that the investment attractiveness within the sector is the lowest, we downgraded the investment opinion to Neutral."

He added, "Given the growing economic concerns due to the COVID-19 crisis, it is expected to be difficult to move away from the role of a policy bank supporting small and medium-sized enterprises and small business owners for the time being, so there is a high likelihood that capital increase issues will continue in the future. It is a reality that small shareholders of policy banks are forced to make sacrifices."

Furthermore, Researcher Choi pointed out, "Earnings are expected to decline this year, and with the continued capital increases increasing the number of shares, the dividend per share (DPS) is expected to decrease further. However, since the government’s stake is increasing, the impact on small shareholders may be less in the case of differential dividends, but the problem is that the government’s budget shortage must also be considered."

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