[Inside Chodong] One Year After Price Fluctuation Range Expansion... Only Institutions Profit from IPOs

Price Fluctuation Limit Expanded to 400% of Offering Price on Listing Day Since June Last Year
Sharp Surge on Listing Day Boosts IPO Investor Returns
Fails to Function as an Early Price Discovery Mechanism

It has been one year since the price fluctuation range on the listing day of public offering stocks was expanded to four times (400%) the offering price. While this has played a positive role in revitalizing the initial public offering (IPO) market, it has failed to function as an early discovery mechanism for appropriate prices.

LaMeditech was listed on the KOSDAQ market on the 17th. Based on the offering price of 16,000 KRW, the newly issued shares had a market capitalization of 138.4 billion KRW and recorded a trading volume of 1.22 trillion KRW on the first day of listing. The tradable volume after listing accounted for only 33% of the total issued shares. Trading on the first day reached 11.5 times the number of tradable shares. Established in 2012, LaMeditech develops skin beauty and medical devices based on ultra-small high-power laser technology. It recorded sales of 2.9 billion KRW last year.

The stock started trading at 50,000 KRW, which is 212.5% higher than the offering price, but closed at 23,150 KRW. Institutional investors recorded net sales of 31.4 billion KRW, while individual investors showed a net purchase advantage of 37.9 billion KRW. The average selling price for institutions was 47,100 KRW, resulting in an average return of 194% based on the offering price. Institutions were allocated 957,220 new shares and sold 666,400 shares on the listing day. Considering the average purchase price for individuals was 36,700 KRW, the average loss rate reached -33%.

Looking at the process of determining LaMeditech’s offering price, 2,278 institutions participated in the demand forecast. 99.5% of institutions offered prices exceeding the expected range of 10,400 to 12,700 KRW. More than 2,200 institutions agreed to subscribe at 16,000 KRW. This is why the offering price was set at 16,000 KRW, which is 26% higher than the upper limit of 12,700 KRW in the expected range.

Gridwiz, which was listed on the KOSDAQ market on the 14th, shows a similar pattern. Individuals purchased Gridwiz shares worth 117.5 billion KRW on the listing day and are currently experiencing an average return of -38%. Institutions recorded net sales of 97.5 billion KRW and achieved a 68% return based on the offering price. The stock price of No Brand, which rose 288% on the day of its listing on the 23rd of last month, fell nearly 60% within a month. Over the past year, the price trend of newly listed stocks has followed the formula of "sharp rise on the first day of listing followed by a decline."

Since the expansion of the price fluctuation range on the listing day, controversies over overvaluation of offering prices have continued. Institutions that can secure only the public offering shares and record high returns on the listing day tend to offer prices without considering the expected range of the offering price.

The regulatory authorities are also aware of the problem and are working hard to find solutions. On the 9th of last month, the Financial Supervisory Service held an "IPO Underwriting Business System Improvement Meeting" at the Yeouido Financial Investment Association. Representatives from securities firms responsible for IPO underwriting also participated. They agreed to establish standards related to the calculation of offering prices. Each underwriter had different criteria for evaluating appropriate values. In the process of calculating the offering price, some companies selected inappropriate or excessive earnings estimates or inappropriate peer companies for comparison. The Financial Investment Association will prepare "Standards and Procedures for Determining IPO Offering Prices," and based on this, each securities firm will establish internal standards.

Looking at the stock price trends of newly listed companies entering the domestic stock market over the past year, there are concerns that inflating the offering price may have rather undermined trust in the IPO market. While the role of underwriters is important, improving the demand forecasting process is urgent. It is time to consider ways to attract long-term investors so that the IPO market does not become one that only enriches the institutions participating in demand forecasting.

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