Public Offering Investment Boom... Last Year's IPO Individual Subscription Competition Rate Doubled

[Asia Economy Reporter Ji Yeon-jin] Last year, the average subscription competition rate for general investors in the domestic Initial Public Offering (IPO) market nearly doubled compared to the previous year. This was due to a significant increase in interest in public offerings as investor sentiment recovered with the stock market rebound from the second half of last year.

The Financial Supervisory Service announced on the 18th that according to the 2020 IPO market analysis, the number of IPO companies last year was 70, down from 73 the previous year, but the total public offering size increased by 40.6% to 4.5 trillion KRW. Although the IPO scale significantly decreased in the first half of last year due to COVID-19, large IPOs such as BigHit (900 billion KRW) and SK Biopharm followed one after another from the second half.

Last year, the average subscription competition rate for general investors' public offerings was 956 to 1, a significant increase from 509 to 1 the previous year. The average number of participating institutions in demand forecasting and the demand forecasting competition rate also showed an upward trend. As the demand forecasting competition intensified, 80% of the public offering prices were set above the upper limit of the price band.

Along with the public offering investment boom, the proportion of institutional investors' lock-up commitments increased, and the lock-up periods were extended. Among the 70 companies listed last year, institutional investors who invested in 66 companies (94.3%) committed to mandatory lock-up for a certain period. In the case of BigHit, 24.83% committed to a 6-month lock-up, 17.87% to 3 months, and 30.88% to 1 month.

When the lock-up period ends, the shares allocated to institutional investors may flood the market at once, potentially negatively impacting the stock price. Therefore, the Financial Supervisory Service urged investors to check the volume of institutional investors' lock-up shares and the number of shares available for circulation after listing in advance.

With improvements in the allocation method for general subscribers and an increase in allocated shares, the equal allocation method and allocation range applied to general subscribers may vary by company, so it is necessary to check the allocation volume by investor type (institutional investors, general subscribers, employee stock ownership associations), subscription and allocation methods (block, separate, multiple, etc.), and the distribution method for undersubscribed shares.

Additionally, since specially listed companies can be listed even if they are deficit companies without profits, it is important to understand that profits may not occur within a short period after listing, and it is necessary to check the type of special listing, applicable requirements, and whether the grace period for designation as a management item applies.

The Financial Supervisory Service emphasized, "Even if market interest is high and the public offering price is set above the upper limit, it does not guarantee high returns after listing," adding, "Among the 56 companies whose public offering prices were set above the upper limit, 8 companies (14.3%) had closing prices on the listing day and at year-end below the public offering price. Therefore, when investing in public offerings, investors should carefully review future business plans, investment risk factors, and the basis for public offering price calculation before making investment decisions."

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