South Korea Capital Markets Deal: Big Hit Entertainment’s W963bn IPO

IFR Asia Awards 2020
3 min read
Candy Chan

Stealing the show

The W963bn (US$881m) IPO of Big Hit Entertainment, the label and manager behind K-pop sensation BTS, stole the show in a chart-topping year for South Korea’s equity markets.

Big Hit’s September float was the largest in South Korea in three years and one of the country’s most successful on record by both subscription levels and first-day performance, helping lift the Korean IPO market to its biggest year since 2010.

The most impressive achievement was its ability to bring in investors from around the world in the midst of the coronavirus pandemic.

Previous hot Korean IPOs had enjoyed a similar response, but those were from the pharmaceutical and mobile gaming sectors – both big beneficiaries from the Covid crisis.

Big Hit’s artists had been forced to cancel live performances, including a BTS world tour of 18 cities in Asia, Europe and the US, but the company pivoted quickly to online events and was able to convince investors that its business would weather the storm.

It reported an operating profit of W49.7bn for the first half of 2020, up 27% over the same period of 2019, as online concert and merchandise sales on Big Hit’s Weverse app, which connects fans worldwide with K-pop artists, more than offset event cancellations.

Only about 30% of first-half revenue came from concert tickets, and the rest from secondary content sales, merchandising, licensing and streaming.

The deal was oversubscribed just an hour after launch on September 14. In a rare move, some foreign institutional investors agreed to a voluntary lock-up of three to six months in a bid to increase their allocation of IPO shares.

The institutional books were 1,117 times covered with eye-popping demand of US$554bn, amounting to 33.6% of South Korea’s GDP in 2019. The retail portion also saw keen participation with that tranche 607 times covered.

The overwhelming demand allowed Big Hit to comfortably price the offer of 7.13m new shares, or 21.1% of its enlarged share capital, at the top of the W105,000–W135,000 indicative range.

About 70% of the foreign tranche went to the global long-only investors and sovereign wealth funds.

Big Hit’s debut on October 15 was remarkable, with the shares rocketing as much as 160% before ending the day 91% higher at W258,000. The stock then settled lower as frenzied retail buying eased, following a familiar pattern in hot Korean listings, and finished IFR’s review period at W160,500 – still 18.9% above the issue price.

JP Morgan, Korea Investment & Securities and NH Investment & Securities were lead bookrunners and Mirae Asset Daewoo was lead manager.

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