Kakao Entertainment Faces Burden on Pre-IPO Due to 'Overseas Subsidiary Losses and Excessive Debt'

Loss of 25.4 Billion Won at 15 Overseas Subsidiaries
Scale Similar to Total Sales
Increased Borrowings to Expand Overseas Business
Current Liabilities Surge to 1.4 Trillion Won
Investment Sentiment Worsens, Pre-IPO Struggles

[Asia Economy Reporter Park Soyeon] Kakao Entertainment is struggling due to losses in its overseas business and an increase in borrowings. With the global economic downturn worsening investment sentiment, it has been unable to accelerate its pre-IPO (pre-initial public offering) fundraising.

According to Kakao Entertainment’s consolidated audit report filed on the Financial Supervisory Service’s electronic disclosure system on the 14th, the company recorded a net loss of 25.4 billion KRW from 15 overseas subsidiaries last year.

Kakao Entertainment has a total of 15 subsidiaries overseas in countries including China, Indonesia, Japan, the United States, Hong Kong, India, and Thailand. Even when combining the sales of these companies over the past year, the total is only about 26 billion KRW, yet losses of a similar scale occurred.

Kakao Entertainment’s financial condition is currently poor because it has rapidly increased its borrowings to continuously pursue mergers and acquisitions (M&A) and expand its overseas business. Current liabilities, which were around 145.2 billion KRW at the end of 2020, surged to approximately 1.4 trillion KRW by the end of 2021. Among these, the short-term debt repayment burden alone approaches 870 billion KRW. On the other hand, cash and cash equivalents and short-term financial products amount to only 280 billion KRW, indicating a significant short-term repayment burden.

Over the past two years, Kakao Entertainment has exhausted funds through 17 M&A deals. The amount invested in M&A alone reaches 1 trillion KRW. Until 2020, the company maintained a debt-free management strategy, but after acquiring 17 businesses, total liabilities exceeded 1.5 trillion KRW as of the end of last year. Kakao Entertainment paid most of the acquisition amounts as goodwill. In particular, while acquiring North America-based webtoon platform Tapas and web novel platform Radish, it succeeded in establishing overseas bases, but these two companies recorded a combined operating loss of 23.5 billion KRW last year, imposing financial burdens.

An investment banking (IB) industry official said, "With rising interest rates increasing debt burdens and the economic recession preventing overseas business from progressing as initially expected, Kakao Entertainment is facing financial difficulties."

Although it is rushing its pre-IPO, uncertain economic forecasts have worsened investment sentiment, and capital injections have yet to occur. Originally, Kakao Entertainment aimed for an IPO in the second half of this year, but due to unfavorable stock market conditions, it shifted to raising investments with JP Morgan as the lead underwriter. The fundraising target is reportedly set at over 500 billion KRW. While it hopes to raise up to 1 trillion KRW, given recent market conditions, negotiations with global private equity funds are not favorable.

Meanwhile, last year Kakao Entertainment merged KakaoPage, which holds original intellectual property (IP) such as webtoons and web novels, with Kakao M, which manages actors and music labels, and changed its name to the current one. It also absorbed Melon Company through a merger. It selected KB Securities and NH Investment & Securities as lead underwriters and has been preparing for an IPO this year.

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