(Bloomberg) — South Korea’s new listing prospects are looking rather dim in 2023 as investors continue to question inflated valuations for companies amid rising interest rates.
Apart from the successful $10.8 billion listing of LG Energy Solution Ltd. in January, Seoul hosted only four other offerings larger than $100 million in 2022. This compares with 18 last year when investors were still willing to ascribe high valuations to tech startups.
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Major initial public offerings globally have come into focus as central banks began raising rates aggressively. In South Korea, they face added scrutiny as regulators and investors are concerned about the recent spate of large deals that have created monopolies in the market.
Getting the valuations seen in the past “will not be as easy, given that the tight demand situation is expected to last at least until the first half of next year,” said Kim Joong-Gon, managing director at NH Investment & Securities.
For the market to gain momentum again, it’s necessary to see “some consensus” that interest rates have peaked and returns from IPOs are higher than prospects for fixed-income and bank savings, he added.
Proceeds raised in Seoul this year slumped 26% versus the same period in 2021, Bloomberg data show. While that’s a modest retraction compared to the plunge in other major venues such as Hong Kong, the slump would have widened to 85% if LG Energy Solution’s listing was excluded.
Eight large offerings were shelved in South Korea throughout the year, including security-services provider SK Shieldus Co. and gaming developer Lionheart Studio Corp., as they struggled to match valuation expectations amid challenging market conditions.
Some of the widely-expected listings last year also delivered hefty losses. Kakaopay Corp., part of a group once feted by local investors, lost about one-fourth of its value since its listing in Nov. 2021 as early investors sold stakes as soon as lock-up periods expired.
Shares linked to its parent company, tech conglomerate Kakao Corp., were in the spotlight throughout the year amid widespread disruption to its services. KakaoBank Corp., which also debuted last year following a $2.3 billion offering, slumped to become one of the world’s worst banking IPO since it listed.
“As the moves by big conglomerates to split off and list their units have become controversies, affiliates at big firms are expected to reduce IPO bids,” Korea Investment & Securities said in a statement to Bloomberg News.
“Recovery of investor sentiment in venture firms is also expected to take time so growth companies such as biotech and artificial intelligence will face more difficulties in IPOs,” it said.