Favorable IPO terms for foreign institutions weigh over Korean stock debutants

[Graphics by Song Ji-yoon]

Favorable conditions for foreign institutions in bidding for Korean IPOs draw disgruntlement from domestic institutions as well as retailers as their dumping with less restriction often weigh over the prices of the stock debutants.

According to a study done by Maeil Business Newspaper on 11 IPO prospectuses and six post-IPO reports in July, 41.5 percent of domestic institutions won their share with commitment to lockup during bookbuilding sessions, whereas the rate was just 12.2 percent for overseas institutions.

Institutions promise to hold onto the initial shares for a certain period to win as many shares as possible in popular offerings.

Yet foreign institutions took away greater shares even without lockup guarantee – 173 on average per 100,000 offering vs 76 for domestic players.

The details have been disclosed after the local financial authority has mandated to separate the lockup and allocation details for domestic and foreign institutions in reporting IPO results from July.

In case of Kakao Bank, only 0.4 percent of foreign institutions pledged to hold onto their shares. They won a combined 1,803,200 initial shares upon subscribing for 7,185,347,000 shares. The lockup ratio was 1.9 percent for Krafton.

Due to the big weight of foreign investors in blockbuster IPOs, their profit-taking can influence the early performance of the new stocks.

For instance, SK IE Technology (SKIET), the battery materials unit of SK Group that went public on May 11 lost 26 percent on the first day on foreign selling. Foreign investors sold an estimated 360.5 billion won worth shares on the first day, or 3.3 percent of the circulating shares.

[¨Ï Maeil Business Newspaper & mk.co.kr, All rights reserved]