[Inside Chodong] A High Public Offering Price Is Not Always the Answer

The price limit on the first day of listing for companies newly entering the domestic stock market has changed to 60-400% based on the public offering price. Public offering investors can now aim for a much higher price called 'ttatabble' (a 4x increase from the public offering price) rather than just 'ttasang' (forming the opening price at twice the public offering price and then hitting the upper limit). The expected return on the first day of listing has increased from 160% to 300%. The maximum loss rate compared to the public offering price has also expanded from -37% to -40%. This creates an incentive for market funds to flow into public offering subscriptions.

The financial authorities expect that expanding the price fluctuation range on the first day of listing will strengthen the rapid price discovery function. While the positive and negative effects of the system change will need to be evaluated going forward, the controversy over overvaluation of public offerings is expected to intensify for the time being.

The final public offering prices of Securecen and Almek, which are listed on the KOSDAQ market on the 29th and 30th respectively, exceeded their expected price ranges. Securecen initially proposed a public offering price range of 2,000 to 2,400 won but set the final price at 3,000 won. Almek also finalized its public offering price at 50,000 won, exceeding the expected range of 40,000 to 45,000 won. Despite the high public offering prices, the subscription for these stocks was very successful. Almek’s public offering subscription attracted a large sum of 8.5 trillion won in deposits.

One month or three months from now, the stock prices of Securecen and Almek may be higher or lower than their public offering prices. However, generally, the higher the public offering price is overvalued, the lower the probability that the stock price will follow an upward trend after listing. The performance of newly listed stocks in the second half of this year will influence the IPO market next year. If a company enters the stock market with a high public offering price but the stock price subsequently performs poorly, the enthusiasm for public offering subscriptions will inevitably cool down.

The lead underwriters, who play an important role in determining the public offering price, receive fees from the companies pursuing listing. They inevitably tend to favor the issuing companies over public offering investors. This is why they are often reluctant to disclose investment risk factors. BioNote, which was listed on the KOSPI market at the end of last year, is a representative case of overvaluation of the public offering price. BioNote’s stock price fell 49.5% compared to the public offering price of 9,000 won within six months of listing. Although it was listed when sales of diagnostic kits surged due to the COVID-19 pandemic, sales sharply declined this year as the situation shifted to an endemic (periodic outbreak of infectious diseases). Even at the time of subscription last year, there were concerns about declining sales, and the proposed public offering price range was criticized for being too high. The expected price range was 18,000 to 22,000 won, but after demand forecasting, the public offering price was finalized at 9,000 won. Although it was listed at half the lower end of the expected range, the current stock price has halved compared to the public offering price.

If the number of newly listed companies like BioNote increases, distrust in the IPO market will grow. Even if it is possible to receive a high public offering price by riding the initial momentum of the system change, the IPO market could fall into a slump again next year. Although the regulatory authorities are proposing various measures to improve the soundness of the IPO market, ultimately the role of the lead underwriters is most important. If they focus only on business performance and cater solely to the issuing companies’ demands, healthy market development will be difficult to achieve.

IPO is not the end but the beginning in a company’s growth process. If a company continues to grow according to the blueprint presented during the IPO process, it will have more opportunities to receive investment under favorable conditions. Setting an overly ambitious goal to increase the public offering price by 10% and failing to meet it can be detrimental. Instead of just proposing a high corporate value to be selected as the lead underwriter, it is necessary to create a structure where both the issuing company and investors can 'win-win' through various growth cases.

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