Success vs Disappointment... Did 'This' Decide the Fate of IPO Subscription?

Stricter IPO Pricing Amid Austerity and Recession
"Aggressive IPO Participation Expected in the Second Half with Anticipated Rebound"

[Asia Economy Reporter Son Sun-hee] The fortunes of companies launching initial public offerings (IPOs) this year have diverged. Since the second half of last year, investment sentiment has weakened, leading to the first undersubscription in over two years, and some companies have seen single-digit subscription competition rates. As the IPO market enters a slump due to the sluggish stock market, evaluations of companies have become more stringent.

According to the financial investment industry on the 20th, semiconductor specialty gas manufacturer 'TMC,' which held its first public offering subscription of the year on the 10th and 11th, recorded a subscription competition rate of only 0.81 to 1. This resulted in an undersubscription. Excluding special purpose acquisition companies (SPACs) and real estate investment trusts (REITs), this is the first time in about two years and three months since October 2019 (Zinus) that a general company's subscription has been undersubscribed. TMC proposed a desired public offering price range of 32,000 to 38,000 KRW, but 77% of the subscription volume was distributed below 32,000 KRW. Ultimately, due to insufficient demand, the final public offering price was set at 28,000 KRW, lower than the desired range.

The marketing, data, and artificial intelligence technology specialist 'Obzen,' which conducted its public offering subscription most recently on the 16th and 17th, also experienced a low subscription competition rate. Obzen's desired public offering price range was 18,000 to 24,000 KRW, but only 13% of subscriptions were made at or above this range. A total of 87% of the subscription volume was concentrated below 18,000 KRW, and the final public offering price was set at the lowest amount in the desired range, 18,000 KRW. Although undersubscription was avoided, the subscription competition rate remained in the single digits at 5.97 to 1.

Unlike those ignored due to a desired public offering price disconnected from market demand, some companies successfully passed demand forecasting despite the sluggish atmosphere. Aluminum material automotive and ship parts manufacturer 'Hanjoo Light Metal,' which held its public offering subscription on the same day as TMC, recorded a subscription competition rate of 565.18 to 1. About 90% of the subscription volume fell within the company's desired price range of 2,700 to 3,100 KRW, and the final public offering price was set at the highest price in the range, 3,100 KRW. Semiconductor distribution company 'Mirae Semiconductor,' which conducted its subscription simultaneously with Obzen, also showed a competition rate of 938.26 to 1, with the public offering price set at the highest price in the desired range, 6,000 KRW.

Ultimately, the key factor was the public offering price. The annual IPO market public offering scale peaked at 20 trillion KRW in 2021 and recorded 16.1 trillion KRW last year. This year, it is expected to shrink significantly to 6.1 trillion KRW. Due to tightening policies worldwide, the previously abundant money supply has dried up, leading the market to respond as if a 'cooling period has arrived.' Since the second half of last year, stocks with single-digit low subscription competition rates have begun to appear, and their numbers are gradually increasing.

For this reason, the selection process has become even more stringent. As the low-interest investment boom has ended, investors' perspectives have become more critical. When money was plentiful in the market, subscription institutions sometimes inflated public offering prices, but now the situation is different.

There is a growing atmosphere to evaluate corporate value more accurately. Companies must also present accurate public offering prices to avoid demand forecasting failures. This is why there is both interest and concern about promising prospects such as Studio Mir Foundation, Oasis, and Kakao Entertainment.

Choi Jong-kyung, a researcher at Heungkuk Securities, said, "This year, the direction of external variables such as global inflation and interest rate hikes, and the resulting possibility of stock market rebounds, are directly linked to the IPO market, making it more unpredictable and therefore more interesting than any other year. There are many players (pre-listing companies), but the key is how much the depressed market revives and whether the IPO market shows vitality." He added, "Although a spectacular revival of the public offering market itself may be difficult this year, aggressive participation in public offerings is expected to be possible in the second half of the year, when an overall rebound is anticipated."