[Missing IPO Giants] ① Only Small and Mid-Cap Stocks Smiled in Half-Successful Market... Expectations for Revitalization Amid Market Stabilization Efforts

K-Bank, Kurly, Oasis Market, and Others Postpone IPOs in Succession
Price Limit Expansion and Prevention of False Bidding to Be Implemented in June

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The initial public offering (IPO) market in the first quarter of this year performed better than expected. Although some evaluations described it as a half-hearted success due to the absence of large-scale companies, small and medium-sized public offerings performed well, maintaining investor interest. The IPO market in the second half of the year is expected to follow a similar trend. While it may be difficult for large-scale companies to go public amid recession concerns, interest in smaller and more agile small and medium-sized enterprises is likely to increase further due to expanded price limits on the listing day.

Newly Listed Stocks Rise 100% Above IPO Price on Listing Day

According to the financial investment industry on the 18th, 27 companies were listed on the domestic stock market in the first quarter, raising a total of 576.8 billion KRW. Compared to the first quarter of last year, the number of companies going public remained the same, but the total amount raised decreased by 95.7%. Excluding LG Energy Solution’s listing last year, which raised 12.7 trillion KRW, the scale of public offerings is similar.

The average demand forecast and subscription competition ratios for companies listed in the first quarter were 1,077 to 1 and 881 to 1, respectively. The average demand forecast competition ratio decreased to 462 to 1 in the fourth quarter of last year but rose again in the first quarter of this year. As the demand forecast competition ratio increased, the proportion of companies setting their IPO price above the upper limit of the expected price range reached 75.0%, up 33.8 percentage points from 41.2% in the fourth quarter of last year.

According to an analysis by Daishin Securities on the price increase rate of newly listed stocks in the first quarter compared to their IPO price, the average was 78.1%, up 34.2 percentage points from the first quarter of last year. The increase rate was even higher when based on the closing price on the first day of listing. The average closing price increase rate compared to the IPO price reached 104.1%, meaning that on average, the stock price doubled on the first day of listing. This first-quarter IPO stock price increase rate was higher than the high market returns recorded in 2020 (53.3%) and 2021 (54.9%). Last year, the average first-day market return compared to the IPO price was only 27.7%. This explains why so much money has been pouring into IPO subscriptions recently. In the first quarter of this year, subscription deposits for IPOs reached 36 trillion KRW. Despite the absence of large-scale IPOs with corporate values exceeding 1 trillion KRW, enthusiasm for IPO subscriptions was intense.

Among companies listed this year, the stock prices of KkumBi and Mirae Semiconductor at the end of March rose to about five times their IPO prices. Mirae Semiconductor, which was listed at 6,000 KRW, rose to 30,500 KRW, and KkumBi increased from 5,000 KRW to 28,550 KRW. Sera Park, a researcher at Daishin Securities, explained, "Despite concerns about the economic downturn, the IPO market in the first quarter showed vitality centered on small and medium-sized stocks, fueled by the early-year boom in themes such as artificial intelligence (AI), robotics, and secondary batteries."

While small and medium-sized stocks performed well in the IPO market, large-scale companies faced setbacks. Since the beginning of this year, K-Bank, Kurly, Oasis Market, and Golfzon County have successively postponed their listings, and no large-scale IPO capable of changing the market atmosphere has yet appeared. In April, only several small and medium-sized companies are planning to go public. Cheolhwan Yoon, a researcher at Korea Investment & Securities, said, "Six companies, including Microtuna, Tomato System, NaraCell, MonitorLab, S-Biomedics, and ProteomeTech, are conducting demand forecasts and subscriptions in April," adding, "S-Biomedics is expected to have the largest market capitalization at about 180 billion KRW."

Attention on Market Soundness Measures Implementation

Large-scale IPOs currently coordinating their listing timing are closely monitoring not only the domestic stock market trends but also the impact of the 'Measures to Enhance IPO Market Soundness' being promoted by regulatory authorities. The Korea Exchange recently revised the detailed enforcement rules related to the method of determining the reference price on the listing day and the expansion of price limits for newly listed stocks on the KOSPI and KOSDAQ markets. This is one of the follow-up measures after the Financial Services Commission announced measures to prevent fictitious subscriptions and enhance IPO market soundness at the end of last year.

Under the revised enforcement rules, the reference price for newly listed stocks will be determined as the IPO price without any separate procedure. The price limit on the listing day will be expanded to 60% to 400% of the IPO price. Currently, the opening price of newly listed stocks is determined by accepting bids between 90% and 200% of the IPO price during the 30 minutes before the market opens. The stock price then moves within a 30% upper and lower limit based on the opening price on that day.

This will change going forward. Without this process, stock prices can rise up to four times the IPO price. The Korea Exchange plans to develop related systems by next month, conduct pre-tests, and apply these changes starting June 26. The authorities expect that this will reduce manipulative behaviors where investors without genuine buying intent place fictitious orders on newly listed stocks and cancel them just before the market opens, thereby disturbing the opening price. Joonil Joo, head of the KOSDAQ trading system team at the Korea Exchange, said, "We expect that improving the method of determining the reference price for newly listed stocks and expanding the price limits will strengthen the function of quickly discovering an equilibrium price on the first day of listing."

The expansion of the upper and lower price limits on the listing day could act as an incentive for investing in IPO stocks. Most individual investors in the domestic IPO market aim to achieve high returns in a short period. Until now, investors who received IPO stocks priced at 10,000 KRW could sell them at a maximum of 26,000 KRW on the listing day, but in the future, theoretically, they could sell at up to 40,000 KRW. This increases the likelihood of attracting 'high risk, high return' investors who are willing to take significant risks for high profits.

A financial investment industry official said, "The 'Ttang Sang' phenomenon, where the opening price forms at twice the IPO price and then hits the upper limit, will disappear," adding, "If cases exceeding 260% of the IPO price appear after the system is implemented, the IPO market enthusiasm could become even hotter." He continued, "From the perspective of companies preparing for IPOs, the expansion of the upper and lower price limits can be a factor for success in demand forecasts and subscriptions," adding, "Reducing the initial circulating shares after listing will be advantageous for receiving a high IPO price."

Prevention of Fictitious Subscriptions May Increase Investor Returns

The expansion of price limits on the listing day can be an opportunity for both companies preparing for IPOs and investors. In particular, the implementation of amendments to prevent fictitious subscriptions is likely to be positive for investors as it can remove bubbles when determining the IPO price. The Korea Financial Investment Association recently announced revisions to the 'Regulations on Securities Underwriting' and the 'Model Standards for Lead Manager Duties.'

The revised underwriting regulations will include new methods for verifying the lead manager’s ability to pay the subscription amount. This involves confirming the total amount of equity capital or entrusted assets recorded for each demand forecast participation or verifying according to internal regulations and guidelines prepared by the lead manager. Institutions that participate in demand forecasts beyond their payment ability will be prohibited from receiving IPO allocations or designated as 'participants with insincere demand forecasts,' subject to sanctions. The Korea Financial Investment Association also plans to revise the model standards to recommend extending the demand forecast period from the current two business days to at least five business days.

Since bubbles are removed when determining the IPO price, the likelihood of IPO investors making profits increases. However, companies, lead managers, and pre-IPO investors who want a high IPO price are expected to use the extended demand forecast period to explain their post-listing growth strategies to investors and strengthen investor relations (IR) activities to gain recognition of appropriate corporate value. An investment banking industry official said, "We hope that large-scale IPOs will emerge along with market improvements in the second half of this year," adding, "Expectations need to revive across the IPO market for investment in unlisted companies to become active."

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