Following Coupang, Market Kurly and Dunamu Aim for New York Stock Exchange Listing
Exchange Busy Improving Listing Review, Highly Evaluates Future Growth Potential
Son Byung-du, Chairman of the Korea Exchange, is seen presenting the direction for promoting innovative growth in the capital market at a press conference held on March 31 at the main conference hall of the Seoul headquarters. [Image source=Yonhap News]
[Asia Economy Reporters Seon-ae Lee and Min-woo Lee] "We wanted to attract Market Kurly's domestic listing, but the company's stance is firm on (listing in) the U.S." A Korea Exchange (KRX) executive recently expressed this regretfully during a meeting with reporters.
Following Coupang's successful listing on the New York Stock Exchange, domestic unicorn companies (unlisted companies valued at over 1 trillion KRW) are rushing to head to the U.S. market. Although the Korea Exchange has started to prepare countermeasures, there are criticisms that it is too late.
According to industry sources on the 5th, the Korea Exchange is promoting a ‘5 Core Strategic Directions’ to actively attract unicorns to list domestically. The main point is to evaluate future growth potential more highly than immediate performance in the listing review process. They have introduced a new sole requirement of a market capitalization of 1 trillion KRW, while lowering the market capitalization and equity capital requirements from the existing 600 billion KRW and 200 billion KRW to 500 billion KRW and 150 billion KRW, respectively. They plan to establish qualitative review criteria suitable for growth companies and involve technology evaluation experts from various fields in the review process. To revitalize KOSDAQ listings, they will also improve the management system for technology-special listing. Additionally, the government is promoting the creation of Business Development Companies (BDCs) to serve as a channel for companies to raise funds and to discover and provide potential investment targets to investors.
However, since these are not groundbreaking improvements but rather maintenance-level approaches, there are criticisms that they are insufficient to attract companies’ attention. An industry insider from a venture capital (VC) firm said, "It feels like d?j? vu with previously proposed ‘Tesla requirements (special listing for unprofitable companies)’ and others," expressing concern about how quickly growth potential can be evaluated amid rapidly changing corporate ecosystems and industries. The Korea Exchange implemented the ‘Tesla requirements listing’ system in January 2017 to allow unprofitable companies to list based on growth potential, but only seven companies have listed on KOSDAQ using this method over the past four years.
The reasons Market Kurly and Dunamu are knocking on the U.S. market’s door following Coupang are ‘corporate value’ and ‘dual-class voting rights.’ Dunamu’s estimated net profit is conservatively around 500 billion KRW, and even applying a price-earnings ratio (PER) of 20, which is half the average PER of 40 for platform industries like Kakao and Naver, its corporate value is 9.7 trillion KRW. However, due to conservative views on cryptocurrency exchanges domestically, it is impossible to recognize a corporate value of 10 trillion KRW in Korea.
Loss-making Coupang has found it difficult to receive corporate value evaluations domestically but is currently recognized at a value between 80 trillion and 100 trillion KRW in the U.S. market. This is why loss-making Market Kurly does not even consider domestic listing. Lee Sang-min, senior research fellow at the Nara Salim Research Institute, said, "Korea mainly looks at past performance, but the U.S. evaluates future growth potential more highly," adding, "Because there is market trust in transparency, the future can be actively predicted."
The presence of management defense mechanisms like dual-class voting rights in the U.S. is also a factor in choosing to go to the U.S. Dual-class voting rights grant a special number of voting rights to certain shares, used as a means to strengthen control by some shareholders. In Korea, one share is granted one voting right as a principle, so this is not allowed. An industry insider said, "If Coupang had listed domestically, it would have been difficult for Chairman Kim Beom-seok to defend management control," adding, "Considering dilution of shares, Market Kurly’s CEO Kim Seul-ah and Dunamu’s Chairman Song Chi-hyung are also not at stable levels, so U.S. listing is more advantageous."
The Korea Listed Companies Association emphasized, "The listing of unicorn companies is an indicator to evaluate the level and scale of a country's capital market and a factor determining tax revenue, so the overseas listing of unicorn companies like Coupang is a national loss," and stressed, "To respond to the internationalization of capital markets, a dual-class voting rights system that meets global standards must be introduced."
Meanwhile, since domestic stock markets are advantageous in terms of listing costs, there is also a prospect that unicorns can be attracted if trust is formed through future policy design. A chief investment officer (CIO) of a KOSPI-listed company explained, "Listing on the U.S. stock market can cost from 400 million KRW to over 1 billion KRW just for external audits and listing maintenance, whereas domestic listing maintenance costs are around 200 million KRW, so domestic listing is still cost-effective, and considering concerns such as class action lawsuits, potential costs could be further reduced."
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