Golfzon County, Valued at 2 Trillion Won but... Investment Firms Remain 'Negative' [IPO Spotlight]

Golf Course Value Peaks and Expected Downtrend
Overvalued Compared to Peer Listed Companies KX and Venue G
High Proportion of Golf Courses Outside Seoul Metropolitan Area
Potential Secondary Sale by MBK Partners

[Asia Economy Reporter Park Soyeon] Golfzon County, the No. 1 golf course operator in South Korea, has passed the preliminary listing review and is preparing for listing on the Korea Exchange (KRX). However, major domestic institutional investors have shown skeptical responses toward investing in offline golf courses. These key institutions have judged that the domestic golf course business, which boomed after COVID-19, has been on a downward trend since early this year, which is expected to negatively affect Golfzon County’s public offering.

According to the investment banking (IB) industry on the 7th, the Korea Exchange (KRX) conducted a preliminary listing review of Golfzon County at the end of last month and approved it. Golfzon County plans to conduct a public offering targeting institutional and general investors within six months. The lead underwriters for the listing are NH Investment & Securities and Samsung Securities, while the amount and number of shares to be offered remain undecided. Market speculation suggests that Golfzon County’s corporate value will be estimated at around 2 trillion KRW. Golfzon County operates a total of 387 holes across 18 golf courses in South Korea. Assuming a value of about 5 billion KRW per hole, the corporate value is calculated to reach 2 trillion KRW.

When simply comparing the market capitalization and number of golf course holes of other listed companies operating offline golf courses, Golfzon County’s corporate value of 2 trillion KRW is considered somewhat high under current market conditions. KX (formerly KMH), which owns a total of 81 holes across Shilla CC (27 holes), Paju CC (18 holes), and Tejeve CC (36 holes), had a stock price of around 7,400 KRW per share as of 9 a.m. on the 7th, with a market capitalization of about 330 billion KRW. Venue G, which owns 27 holes, had a stock price of about 2,300 KRW per share and a market cap of approximately 110 billion KRW.

However, since KX and Venue G have other business segments accounting for a large portion of their sales, their market capitalization cannot be seen as fully reflecting the value of golf courses and golf business revenue. This means the actual value of their golf course and operations business is less than their market capitalization. As of the first half of this year, KX’s sales composition includes semiconductor materials (51%) and broadcasting (15%), totaling 66%. Venue G’s sales composition also exceeds half with department stores (44.02%), wedding halls (17.99%), and hotels (4.08%).

Another factor negatively affecting the offering price is that while KX and Venue G’s golf courses are mainly located near the Seoul metropolitan area, Golfzon County’s major golf courses are scattered nationwide. Golfzon County owns many golf courses in regions somewhat distant from the metropolitan area, such as Lake Hills Suncheon, Seonsan CC, J’s CC, Gampo J’s CC, Namyang Leisure, and Lake Hills Gyeongnam.

There are also concerns that the high shareholding ratio of private equity funds could be an obstacle to price setting. Golfzon County was established in January 2018 by Golfzon Newdin Group, famous for its screen golf business, through a spin-off of its golf course division. Initially, the holding company Golfzon Newdin Holdings owned 100% of the shares, but after receiving investment from the private equity fund (PEF) operator MBK Partners, the shareholding ratio decreased to 47.24%. Currently, the largest shareholder is Korea Golf Infrastructure Investment, a special purpose company (SPC) established by MBK Partners, holding 47.24% and 5.51% in convertible preferred shares (CPS) as of the 2021 year-end audit report.

Since MBK Partners’ establishment of Golfzon County in 2018, it has invested 114 billion KRW to secure a 50% stake and participated in four subsequent capital increases, investing a total of 288 billion KRW. If the preferred shares (5.5%) held by Korea Golf Infrastructure Investment are converted into common shares, MBK Partners’ stake will rise to the 70% range. MBK Partners plans to reduce its shareholding to the 20% range after the listing through secondary share sales and new share issuance dilution. MBK Partners is seriously considering selling about 50% of its potential 70% stake. Secondary share sales do not bring funds into the company and are considered a factor that relatively lowers investment attractiveness.

The IB industry had expected this year to be an optimal time for IPOs, but recent market sentiment and golf industry conditions are not favorable for Golfzon County’s listing. Major investors observe that the golf industry, which grew rapidly after the COVID-19 pandemic, peaked last year and early this year. Lee Doyoon, head of the Yellow Umbrella Asset Management Division, said, “Domestic golf courses peaked last year and early this year,” adding, “I don’t think the golf course business will continue to do well. There is a golf course bubble, so now is not the right time to invest.”

Although the COVID-19 pandemic is still ongoing, with overseas travel somewhat resuming, demand for domestic golf is expected to decline. Han Jongsuk, Financial Investment Director at the Police Mutual Aid Association, also said, “The domestic golf course business has already declined this year as overseas travel resumed, but prices will sharply drop around the second half of next year,” adding, “That might actually be the right time to invest.”

Heo Jang, Business Director at the Government Employees Pension Service, pointed out, “It is difficult for the domestic golf industry to improve beyond last year,” and said, “It is clearly a short-term overheating.” However, he added, “Due to domestic geographic conditions, additional construction of golf courses, i.e., supply, is limited, so the issue will be demand and price.”

Meanwhile, Golfzon County posted separate financial statements showing sales of 191.8 billion KRW and operating profit of 52.2 billion KRW last year.

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