[Into the Stock] SK Square's Post-IPO Stock Slump Eased by Block Deal Alleviating 'Overhang' Concerns

Expectations for Rebound with Next Year's Subsidiary Listings Including One Store and SK Shieldus

[Asia Economy Reporter Song Hwajeong] SK Square, which was spun off from SK Telecom and listed on the 29th of last month, continues to experience sluggish stock performance. Attention is focused on whether the stock price can seize a rebound opportunity as the 'overhang' issue, which had suppressed the stock price, eases.

According to the Korea Exchange on the 13th, SK Square's stock price has fallen 22.8% compared to the initial price (82,000 KRW) at the time of listing on the 29th of last month, based on the previous trading day's closing price. The stock price declined by 7% on the first day and more than 10% on the second day, continuing the downward trend. There were only two days of gains after the listing.

Until the listing, SK Square's stock potential was evaluated to be relatively higher than SK Telecom's, due to the expected listing momentum of its subsidiaries. Namgon Choi, a researcher at Yuanta Securities, said, "After the split, the stock potential is higher for SK Square," adding, "Among the subsidiary portfolio, depending on whether 11st, T map Mobility, and One Store secure business competitiveness, an increase in net asset value (NAV) and a reduction in NAV discount rate can occur simultaneously. Since SK Square is closer to an investment company rather than a simple holding company, it is reasonable to apply a discount rate lower than the 60% discount rate applied to general holding company NAV."

Ilwoo Yang, a researcher at Samsung Securities, said, "The listing of unlisted subsidiaries with a dazzling lineup is the key investment point," adding, "Some listing schedules of unlisted subsidiaries have been partially disclosed, and some companies do not have much time left until listing, so there will be momentum." One Store is scheduled for the first half of next year, and SK Shieldus (formerly ADT Caps) in the second half.

Despite these expectations, the stock price has continuously declined since the listing due to the overhang issue. Previously, SK Telecom was listed on the New York Stock Exchange through American Depositary Receipts (ADR), but according to U.S. securities exchange regulations, holding companies cannot be listed via ADR. Consequently, concerns about overhang arose as ADR investors were expected to sell SK Square shares. In fact, foreigners have been the largest net sellers of SK Square this month. Foreign investors sold SK Square shares worth 274.6 billion KRW up to the 10th of this month.

As these overhang concerns have somewhat eased, changes in the stock price are expected. SK Square shares worth 400 billion KRW were disposed of through an after-hours block deal on the 3rd. This is believed to be the volume from ADR investors. Researcher Choi said, "In the case of SK Square, there was an overhang burden related to the ADR-related cash settlement volume (6.07 million shares, 4.3% of total shares) from a supply-demand perspective, which caused short-selling pressure, but this burden was resolved through a block deal after the market closed on the 3rd," adding, "The stock price will form a bottom and rebound from the maximum discount rate of 5.9% (stock price basis 62,100 KRW)." He also added, "In February next year, a net purchase inflow of about 300 billion KRW is expected related to the MSCI free float adjustment."