Saudi, Singapore wealth funds mull pre-IPO investment in Kakao Entertainment

Crown Prince Mohammed bin Salman

Saudi and Singapore sovereign wealth funds are mulling joint pre-IPO investment of up to 800 billion won ($592 million) in Kakao Entertainment, fueling stock prices of the Korean contents operator’s listed parent and siblings.

Saudi Arabia’s Public Investment Fund (PIF) under the ownership of Crown Prince Mohammed bin Salman who last week visited Seoul is reviewing equity investment in Kakao Entertainment to add another Korean contents major to its investment portfolio after Nexon Korea Corp. and NCSoft Corp.

According to multiple sources from the investment bank industry on Tuesday, Saudi Arabia’s PIF is engaged in discussion with the Government of Singapore Investment Corporation (GIC), a Singaporean sovereign wealth fund, on joint investment in Kakao Entertainment.

The Korean contents operator seeking valuation of around 10 to 12 trillion won ($8.4 billion) – is hoping to draw 1 trillion won in pre-IPO funds before going public next year.

GIC and PIF could take up 700 to 800 billion won. GIC would be leading the deal, according to an unnamed industry source.

Local private equity firm H&Q Korea is studying investment of 100 to 200 billion won in Kakao Entertainment.

[Photo by Park Hyung-ki]

Kakao Entertainment declined to confirm the report, saying no decision has been made yet.

Kakao Entertainment plans to use the proceeds to build up its portfolio through M&As before public offering. The pre-IPO funding scheme could be delayed to December or early next year due to volatile financial market conditions.

Kakao Entertainment has been trying to bolter contents in web fiction, comics, visual content production, and music sources trough M&As.

It acquired Tapas Media, North America’s first webtoon platform, last year, to accelerate global entry of webtoons and web stories.

Kakao Entertainment is also engaged in business expansion in visual content and music businesses. The company operates Korea’s largest music streaming platform Melon and has multiple agencies as subsidiaries. It also manages popular artists like IU, Apink, and IVE.

Its parent Kakao has joined hands with Seoul City this year to build the country’s first music-specialized concert venue Seoul Arena. Securing intellectual property (IP) of popular Korean artists can widen Kakao Entertainment’s global outreach.

“There should be aggressive investment to enhance entertainment value chain to promote Kakao Entertainment’s successful listing,” said an unnamed official from the contents industry. “It needs to continue to strengthen its capacity in webtoon and web story businesses as competition mounts globally and with Naver Webtoon.”

GIC is a major limited partner of Anchor Equity Partners, a key shareholder of Kakao Entertainment. Anchor Equity Partners invested 125 billion won in the content firm, previously called Kakao Page, based on 500 billion won in corporate valuation as of end of 2016. Kakao Page merged with Kakao M focused in visual contents in 2021 to launch as Kakao Entertainment.

Anchor Equity Partners’ equity investment value on the books is expected to go up should GIC decide to go with investment based on the valuation of 10 to 12 trillion won. Anchor Equity Partners is Kakao Entertainment’s second-largest shareholder after Kakao as of end of last year.

Saudi Arabia’s PIF was set up in 1971. It is the world’s largest sovereign wealth fund with total asset of $620 billion. Crown Prince - who is the chairperson of the board - has been keen on investing in potential industries like games and information technology in an industrial structure shift from oil. The PIF is known to have allocated $10 billion in funds to buy stocks of entertainment and renewable energy firms.

The PIF has secured 9.26 percent of stake in NCSoft this year to become the second-largest shareholder. It is also the fourth-largest shareholder of Nexon listed in Tokyo after its 7.09 percent stake purchase. The fund has invested 3 trillion won in the two top-tier game publishers.

Shares of Kakao Corp. rose 4.6 percent, Kakao Pay 3.2 percent, KakaoBank 3 percent, and Kakao Games 4.1 percent during early session.