Majority of newly listed stocks fall below IPO price in S. Korean market

[Photo by Yonhap]

This year, seven out of ten newly listed stocks in the South Korean market are currently trading below their initial public offering (IPO) prices. However, half of these stocks have managed to avoid falling below the lower end of the price range initially proposed to potential investors.

Despite presenting appropriate valuations, excessive competition to secure IPO shares led to inflated IPO prices, ultimately resulting in significant investor losses. According to the Korea Exchange on Sunday, out of the 34 companies newly listed on the Kospi and Kosdaq markets this year, about 68 percent or 23 companies are now trading below their IPO prices.

Only five companies—Shift Up, Innospace, Shinhan Global Active REIT, Gridwiz, and HD Hyundai Marine Solution—set their IPO prices within the initially suggested price range.

Had the IPO prices been set within the initially proposed range, many investors would likely have experienced smaller losses. For instance, Osang HealthCare, which went public in March, has seen its stock price drop about 22 percent from the IPO price of 20,000 won to 15,540 won. However, the company had initially suggested a price range of 13,000 to 15,000 won per share. If the IPO price had been set at the upper end of this range, the current stock price would still represent a profit.

Osang HealthCare set its IPO price 30 percent higher than the top of the initial price range due to aggressive bidding from institutional investors. Over 80 percent of the 2,007 institutions participating in the demand forecast offered prices above 20,000 won, driven by a strategy to secure shares and sell them on the first trading day for substantial profits.

This trend has intensified since last year when the price limits for newly listed stocks on the first day of trading were expanded to 60-400 percent of the IPO price (previously 63-200 percent). The industry reports a surge in small-scale institutional investors with assets under management of only a few hundred billion won, exacerbating the issue. After allocating 30 percent of the IPO shares to individual investors, around 25 percent to Kosdaq venture funds, and about 5 percent to employee stock ownership, the shares available to institutional investors are significantly limited.

“For an IPO raising about 30 billion won, a small asset management company might only receive 3 to 4 million won worth of shares. Given the small allocation, these investors often sell their shares on the first morning of trading,” said a financial investment industry insider.