South Korea’s IPO boom leaves investment banks short changed

By Scott Murdoch and Heekyong Yang

HONG KONG/SEOUL (Reuters) – South Korea’s fairness providing increase has created a cash spinning alternative for issuers and buyers, however it has introduced little cheer to at the least one section of the capital market: funding banks and brokerages engaged on these transactions.

LG Vitality Resolution Ltd’s (LGES) $10.8 billion preliminary public providing (IPO), the most important ever in South Korea, netted bankers engaged on the deal lower than 1% of the proceeds, Dealogic knowledge confirmed.

Such charges make the nation one of many lowest fee-paying main fairness capital markets (ECM) on this planet.

Hong Kong IPOs typically pay charges of two%, according to the New York Inventory Alternate, whereas Nasdaq listings internet bankers a median of three.4%, in line with Dealogic knowledge. In 2021, the typical paid in these markets sat at 3.2%.

The low charge payouts imply South Korea will unlikely emerge as a serious earnings generator for Western banks, even because the nation is witnessing a document stage of capital market exercise and a brand new fairness elevating pipeline that’s getting busier.

South Korean IPOs have historically paid low charges in contrast with different main markets, stated one Hong Kong-based ECM banker with direct data of the matter.

“Korea has by no means paid properly, so it doesn’t shock me … however a number of million bucks remains to be a number of million bucks,” stated the banker, who was not permitted to talk to the media and so declined to be recognized.

Eleven funding banks and brokerage companies together with Morgan Stanley, Financial institution of America Corp, Citigroup Inc and Goldman Sachs Group Incand native brokerage KB Securities labored on the IPO of South Korean battery maker LGES.

They’re set to pocket a mixed $75 million, the corporate’s IPO prospectus confirmed. That cost, as a portion of complete funds raised, equates to 0.7% – one of many lowest proportions paid in a serious market globally.

The IPO, Asia’s largest since Alibaba raised $12.9 billion in its Hong Kong secondary itemizing in 2019, attracted $12.8 trillion value of bids from institutional buyers and $96 billion from retail buyers.

LGES just isn’t alone in paying a low charge: KakaoBank Corp, which raised $2.1 billion by way of an IPO in July final 12 months, handed bankers a 0.8% base charge, whereas underwriters for Krafton Inc acquired 0.5% for his or her work on a $3.6 billion deal in the identical month, their prospectuses confirmed.

Native brokerages are, nonetheless, not complaining.

“We felt that getting that 0.7% fee was fairly adequate, contemplating the extent of the LGES deal,” stated an individual at a neighborhood brokerage with data of the transaction.

“The bottom charge might appear decrease than charges in different main markets like New York or Hong Kong, however the LGES deal was not essentially too troublesome for brokerage companies or banks to deal with.”

Surging deal quantity within the nation must also offset the affect of the low charge base within the close to time period.

Greater than 20 firms went public on the principle market final 12 months, elevating about 17 trillion gained ($14 billion) and beating the earlier document of 8.8 trillion gained raised in 2010, in line with bourse operator Korea Alternate.

Specialists stated urge for food for IPOs in South Korea would possible proceed into 2022 as some unicorns and e-commerce companies are in search of to go public this 12 months to benefit from the IPO market optimism.

($1 = 1,194.4000 gained)

(Reporting by Scott Murdoch in Hong Kong and Heekyong Yang in Seoul; Modifying by Sumeet Chatterjee and Christopher Cushing)