Korean companies eye IPO bonanza

International equity investors have been starved of major Korean IPOs this year. That is about to change.

South Korea’s new listing market has offered little to investors this year. Just $1.5bn has been raised from IPOs in the country in 2016, compared to $3.56bn last year, according to Dealogic. The cancellation of a mammoth deal from Hotel Lotte has left investors with little to look forward to.

Not anymore. A trio of companies are preparing for IPOs that could — in one quarter — dwarf the amount raised throughout all of 2015.

Doosan Bobcat, Samsung BioLogics and Netmarble Games are planning IPOs that would add some $5 billion to Korea’s IPO supply, making it the strongest year for new listings since 2010.

This will offer an intriguing opportunity to international investors — who have gotten used to some eye-catching returns from the country.

Hotel hell

Market participants had expected 2016 to be a record year for Korean listings. But the market got a huge blow in June when Hotel Lotte was forced to cancel its W5.7 trillion ($4.8 billion) IPO — the largest Korean listing in history — after an investigation into the group’s bribery allegations.

Bankers have now turned their hopes to the upcoming trio of IPOs, which they say will provide international investors a rare opportunity to invest in a market known for offering lucrative returns. 

Samsung Group affiliate Cheil Industries and Samsung SDS, the biggest IPOs since 2013, were able to deliver over 100% returns after completing their billion-dollar listings in 2014 — and that was just on their trading debuts. Shares of train maker Hyundai Rotem, the third largest, also surged 70% on its debut after its $585 million IPO three years ago.

As a result, global investors have been eager to buy into jumbo Korean IPOs for short-term returns that are unlikely to be found elsewhere in Asia. This is despite the fact that Korea throws up some unique problems for investors.

When Cheil Industries and Samsung SDS listed two years ago, it was clear that the two IPOs were part of Samsung Group’s restructuring in the midst of a dynastic succession. They were part of a broader plan to allow heir apparent Lee Jae Yong to retain control over the business empire.

As a result, the deals were largely secondary in nature and they were not seen as genuine fundraising plans for business expansion. 

Yet the two companies were able to attract strong demand to cross the finish line, aided by their strong brand names and the fact that they were likely to be included in Korea’s major stock indices. 

The new deals of Doosan Bobcat, Samsung BioLogics and Netmarble Games are equally appealing given their strong branding. Two of the three also have clear expansion plans in some of the country’s hottest sectors.

Samsung BioLogics, the contract drug manufacturing arm of Samsung Group, has announced that it intends to use the IPO proceeds to finance investment and research in technology innovation projects.

Netmarble Games founder Bang Jun-hyuk said the company’s listing will help boost its global marketing and fund potential mergers and acquisitions. Netmarble Games is the mobile game developer under Korean conglomerate CJ Group.

Doosan Bobcat is the exception. The construction machinery manufacturer said the IPO proceeds will primarily be used to pay off the debt of its parent company Doosan Infracore. Still, the company was in its best shape since being acquired by Doosan Group in 2007, having booked a record profit of $135 million last year. 

Doosan will start the ball rolling. The company will offer a total of 49 million shares at an indicative price range of W41,000 to W50,000 per share and aims to list on October 21.

Samsung BioLogics is likely to follow shortly, having filed its listing application with the Korea Exchange in August. Netmarble Games will be hot on the heels as it prepares to complete the listing by the end of this year.

These deals are clearly ones to watch for international investors with a taste for Korea. But executives at the three companies will also be keeping their eyes peeled — paying attention to the US presidential election in November.

Doosan Bobcat counts North America as its biggest market, while Netmarble Games is planning to develop a game studio in the US. Samsung BioLogics, meanwhile, has applied to register its products with the US Food and Drug Administration, preparing for its likely imminent expansion into North America.  

As such, the policies of the new administration could make a big difference to these companies. 

The coming onslaught of Korean IPOs offer a unique and sizeable proposition to international investors. They are among the biggest deals to watch in Asia’s ECM market over the next few months. 

But investors could be forgiven if they kept one eye on the Korean stock market — and the other eye on Donald Trump’s poll ratings.

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