Krafton slashes IPO target
Tencent-backed South Korean games developer Krafton has downsized its KRX IPO by almost a quarter, from W5.6trn to W4.31trn (US$3.8bn), casting a shadow over the country’s crowded IPO pipeline.
At the initial target size, the deal would have surpassed Samsung Life Insurance's record Korean IPO of W4.88trn in 2010. A string of other listing aspirants such as electric vehicle battery maker LG Energy Solution, digital lender Kakao Bank, fintech Kakao Pay and shipbuilder Hyundai Heavy Industries are watching closely how the deal pans out.
Krafton delayed opening books on Monday after the Financial Supervisory Service ordered it on June 25 to revise its IPO registration statement.
People close to the deal said Krafton was asked to change some disclosures in the filing regarding listed comparables, leading to the deal size being cut.
Under revised terms released on Thursday, up to 8.65m shares (65% primary/35% secondary) or 17.7% of the capital will be offered at W400,000–W498,000 each for an implied market capitalisation of W17.3trn–W21.6trn.
The new price range is down 11.5% compared to the original W458,000–W557,000 at the mid-point. The shares on offer have also been cut from up to 10m shares (70% primary/30% secondary).
Krafton was originally looking for a market capitalisation of up to W28trn and a forecast 2021 P/E of 45.2x, having compared itself to Walt Disney and Warner Music, even though it is not a global media conglomerate with a long pedigree anywhere close to the two US entertainment giants.
The company, known for the global hit last-man-standing shooter game PlayerUnknown’s Battlegrounds, or PUBG, released a short video on YouTube that presented it as a media platform company rather than just a game developer.
The revised P/E, based on a lowered 2021 profit estimate, is 43.8x, closer to Korean peers such as NCSoft, Netmarble and Kakao Games, which were trading at 27.91x, 38.82x and 43.92x respectively as of last Thursday's close, Refinitiv data shows.
Retail protection
According to local regulations, the FSS can issue an order if filings contain false information, an omission of important facts, or content that may undermine investors’ reasonable judgment or mislead them in a major way.
Bankers said the regulator has sent a clear message that the interests of retail investors will be looked after.
“Since issuers were allowed to allocate more of their IPOs to retail investors, the retail market has been very hot and subscriptions have broken record after record,” said a person close to the deal.
EV battery separator marker SK IE Technology received a record W80.9trn retail subscription from more than three million individuals in April, close to 6% of the country’s 51.8 million people.
Although SK IET's shares rose 47% on their debut on May 11, investors who bought the stock at the day's high in the open market are nursing a 17% loss after institutional investors, who were only subjected to a voluntary lock-up, quickly took profits.
Shares in Hybe, the label and manager of K-pop sensation BTS, doubled on debut last October but fell 22% on the second day.
“The FSS has been worried about the overheated market and people irrationally buying into heavily marketed IPOs,” said another person.
Last month, Covid-19 test kit maker SD Biosensor was requested by the regulator to scale down its planned IPO from W1.3trn to W674bn. NH Investment and Securities and Korea Investment and Securities are the lead managers.
There is hope the closer scrutiny will lead to less aggressive marketing.
“Different IPOs come with different stories and it is difficult to say how Krafton will affect the next deal,” said the first person. “But we know the regulator is watching and no banker would like to see their deals get picked on.”
Chinese tech giant Tencent holds 13.2% of the company, while Krafton chairman Jang Byeong-gyu holds 17.4%.
The selling shareholders are Belize One, Krafton CEO Changhan Kim, Bluehole Studio developer Hyung Jun Kim and Bluehole Studio head Dooin Cho.
Krafton plans to use the proceeds for potential acquisitions or investments, global expansion, the development of new games and entertainment content, R&D into new technologies and working capital.
Books will be open from July 14–27 and the shares will start trading on August 10.
Credit Suisse, Mirae Asset Daewoo, Citigroup, JP Morgan and NH Investment & Securities are the bookrunners.