South Korea Capital Markets Deal: Kakao Bank’s W2.55trn IPO

IFR Asia Awards 2021
3 min read
Sunny Tse

Navigating scrutiny

The W2.55trn (US$2.15bn) IPO of Kakao Bank, South Korea’s largest digital-only lender, passed tough regulatory scrutiny and set a positive tone in a record year for the country’s IPO market.

Kakao Bank’s August float was the largest financial technology IPO in South Korea and the country’s most successful on record by subscription amount at the time, helping lift the Korean IPO market to its biggest year since 2010.

While some other IPO candidates had to slash their fundraising targets after local regulators stepped up scrutiny on overvalued IPOs, Kakao Bank managed to push ahead without problems.

A rising stock market and a new rule allowing Korean issuers to allocate more of their IPOs to individuals drew millions of retail investors, prompting the regulators to step in around mid-year to make sure small investors would not fall victim to a stock market bubble.

Kakao Bank announced its IPO terms on June 28, three days after Tencent-backed games developer Krafton was ordered by the Financial Supervisory Service to revise its IPO registration statement as it had used inappropriate listed comparables in the document to help boost its valuation.

During Kakao Bank’s bookbuilding, the planned IPO of online payment provider and sister company Kakao Pay (also owned by Kakao Corp) was questioned by the FSS for similar reasons. As a result, both the Krafton and Kakao Pay floats were delayed and returned later in the year with smaller sizes.

To avoid being a target for the regulators, Kakao Bank picked its comparables carefully and stressed that the structure of its operating profit and expansion plans were very different from traditional peers.

The lender eventually started bookbuilding as planned on July 9. Its strong growth and impact on the banking industry persuaded investors to look beyond its valuation and participate in the transaction.

The deal was multiple times covered on the first day of bookbuilding, with the support of global long-only, sovereign wealth fund and hedge fund investors.

The institutional books were 1,732 times covered with eye-popping demand of US$2.04trn.

The upbeat demand allowed Kakao Bank to comfortably price the offer of 65.45m new shares, or 13.8% of its enlarged share capital, at the top of the W33,000–W39,000 range.

Kakao Bank’s debut on August 6 was remarkable, with the shares rocketing 79% to close at W69,800, making the bank South Korea’s biggest financial services firm by market value at around US$29bn.

The stock finished IFR’s review period at W59,000 – still 51% above the issue price.

The stellar performance created a positive backdrop for sizeable IPOs that came later in the year.

Credit Suisse and KB Securities were lead bookrunners on Kakao Bank, with Citigroup as a joint bookrunner.

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