KakaoPay Scheduled for Listing Next Month Faces Growing Overhang Concerns

Kakao Pay's Demand Forecast Today, Ongoing Controversy Over Overvalued IPO Price
Second Largest Shareholder Alipay Holds 28% Stake, Tradable Immediately Upon Listing
"Possibility of Stock Price Decline Due to Sale"

[Asia Economy Reporter Ji Yeon-jin] Concerns about an ‘overhang’ have been raised regarding Kakao Pay, which is scheduled to be listed on the KOSPI market next month. Overhang refers to a large volume of potentially sellable shares, and some of the shares owned by Alipay, the second-largest shareholder of Kakao Pay, will be immediately tradable right after the listing.

According to the Financial Supervisory Service’s electronic disclosure system on the 20th, Kakao Pay recently stated in its third amended securities report that 13,894,450 shares acquired by Alipay Singapore within one year before the preliminary listing review application will be locked up for six months. Initially, Kakao Pay had stated that 13,894,450 shares acquired by Alipay within one year before the listing application would be locked up for six months, and 2,222,665 shares would be locked up for one year from the issuance date.

Kakao Pay was launched in April 2017, raising $200 million in investment from Ant Group, which operates Alipay, and transferred a 39.1% stake to Alipay. Alipay increased its stake to 45% by participating in Kakao Pay’s paid-in capital increases in June last year and April this year. Based on the post-listing status, 13,894,450 shares (10.65%) held by Alipay will be locked up for six months, but 37,120,755 shares (28.47%) will be immediately tradable after listing. Including 13,600,000 shares (10.44%) from the public offering, the immediately tradable volume right after listing reaches 38.91%. Kakao Pay also stated in its securities registration statement that "the tradable volume can be sold from the listing date, and the sale of such volume may cause the stock price to decline."

Kakao Pay will finalize the public offering price through institutional investor demand forecasting over two days starting today. The desired public offering price per share is KRW 60,000 to 90,000. The initial desired public offering price was higher, but the listing was delayed amid controversy over overvaluation. However, controversy remains that the revised public offering price is still overvalued compared to performance. Jeong Gwang-myeong, a researcher at DB Financial Investment, pointed out regarding Kakao Pay’s public offering price calculation method, "In valuations considering future growth potential, it is common to apply future growth rates rather than past growth rates. The valuation of Kakao Pay applying past revenue growth rates includes very aggressive and unsustainable assumptions that the recent high revenue growth rate will continue."

Earlier, in August, when Kakao Bank was listed on the KOSPI market, the stock price sharply declined after the initial investor, Korea Post, sold 13,680,383 shares (2.9%) of Kakao Bank last month for 1.1 trillion KRW. Krafton also experienced a decline in stock price immediately after listing due to institutional investors’ overhang concerns. Both stocks were embroiled in overvaluation controversies before listing.