Equities

South Korea IPO lockup rules deter issuers

 |  IFR 2598 - 30 Aug 2025 - 5 Sep 2025  | 

New lockup rules for South Korean IPOs that took effect in July are expected to discourage some listing candidates from taking their deals forward, despite a strong stock market.

The Financial Services Commission announced the rules in January, aiming to stabilise debut and aftermarket performance and secure mid to long-term investors for IPOs.

The rules require a minimum of 30% of the institutional offering to be allocated to "committed" investors who agree to a lockup period in return for preferential allocations. This is set to increase to 40% starting in 2026.

In the event that the institutional lockup portion falls short of the minimum, the FSC will require IPO underwriters to subscribe to 1% of the public offering, up to a cap of W3bn (US$2.2m), and hold it for six months. 

ECM bankers believe this may delay some IPOs as listing candidates and banks now have to ensure they can persuade a large number of investors to agree to a lockup period. 

"Under the stricter rules, small and mid-sized companies or companies from less common sectors may be more hesitant to raise funds from IPOs, as these companies may need more investor support to get the deal done," a South Korean ECM banker said.

Banks will also closely evaluate whether listing hopefuls can secure the required lockup commitments before they push the deals ahead, according to another South Korean ECM banker. "I don't think any banks would like to take up 1% of every single deal they do," said the banker. 

Going ahead

While IPO candidates are being more cautious about their plans under the new rules, some say this would be a good time to show their deals to investors who have fewer transactions to look at. 

Nota AI, a company specialising in AI model compression and optimisation, is one of them. 

"In a challenging IPO environment with tightened listing requirements, submitting our securities registration statement as planned underscores our proven profitability and solid mid to long-term growth vision," said Myungsu Chae, CEO of Nota AI.

The company is planning to raise up to W26.6bn from a Korea Exchange IPO, with bookbuilding running from September 12–18.

Kakao holds 3.6% of Nota AI, whose other backers include LG CNS and Naver.

Mirae Asset Securities is the lead manager.

With South Korea's benchmark Kospi Index up more than 30% this year, bankers believe some bigger and higher quality companies will still want to bring their IPOs to market as investors are more willing to agree to a lockup for such names to secure bigger allocations.

For instance, Daehan Shipbuilding, which raised W500bn from an IPO earlier in August, saw more than 60% of institutional investors make voluntary lockup commitments. The new rules did not apply to the company as it filed its securities registration statement before July.

The maker of petroleum product carriers and crude oil tankers made a stellar debut on August 1, ending the day up 85% from the IPO price. 

“Market conditions are now favourable enough for some high-quality issuers to meet the lockup requirement. But when the market is volatile, it is impossible to see such a big portion of investors agree to be locked up,” the first ECM banker said.