Seoul mates: Korea retail investors are bankers' best buddies amid record IPO fees

DAISHIN SECURITIES CO

17/08/2021 08:12

* Year-to-date IPO fees highest since 2006
    * About $60 billion deposited in brokerage accounts
    * LG Energy Solution expected to raise between $10-12 bln

    By Scott Murdoch and Joyce Lee
    HONG KONG/SEOUL, Aug 17 (Reuters) - Investment banks in
South Korea have pocketed record fees from equity underwriting
this year thanks to a boom in initial public offerings (IPOs),
data showed - and bankers are betting a buzzing deal pipeline
means a continued near-term surge.
    The total fee pool for 2021 equity capital market (ECM)
deals in South Korea is now equivalent to $315.5 million,
according to Refinitiv data. Of that, $236 million has been
earned from the record number of Seoul listings in 2021.
    Fees earned so far this year have already surpassed the full
2020 total and the amount is more than double that earned in
2019, the data showed. The previous fee record, year to date,
was $178.6m in 2006.
    Some $17.25 billion has been raised via IPOs this year,
already four times the amount for all of 2020, with Krafton's
$3.7 billion https://www.reuters.com/technology/skoreas-krafton-maker-hit-game-pubg-tumbles-debut-2021-08-10
 IPO the largest this year followed by KakaoBank's $2.29 billion
https://www.reuters.com/business/finance/kakao-bank-becomes-skoreas-biggest-lender-by-market-value-stellar-debut-2021-08-06
 deal.
    That's before the mouthwatering prospect for investment
banks of what's expected to be South Korea's largest ever IPO
later this year - LG Energy Solution, part of the LG 
conglomerate, is due to raise between $10 billion and $12
billion.  urn:newsml:reuters.com:*:nL2N2NQ0HI
    "The greatest amount of money that has flowed into the stock
market, especially into the IPO market, is from retail
investors," said Joseph Kwon, director of ECM at Citigroup,
reckoning the amount of money currently deposited in brokerage
accounts is estimated to be about 70 trillion won ($59.50
billion) - enough to continue to underpin the market.
    The windfall is a welcome relief for both domestic and Wall
Street bankers. Seoul is a market that pays fees of about 1% of
the IPO proceeds, compared with about 2% in New York and Hong
Kong and more than 4% for floats in China's Nasdaq-style STAR
Market.
    Enthused by the surging deals volume and fee pool, Seoul's
Daishin Securities had hired about 10 bankers this year to take
its total workforce to 38, and is looking to add more in the
near future, said Youseok Nah, managing director of Daishin's
IPO Group.
    Daishin jumped from 10th among local banks last year on the
country's ECM fee league table to rank sixth currently, the
Refinitiv data showed.      
    "South Korea has never seen so much direct investment in IPO
stocks by retail investors, especially those in their 20s-30s,
until last year, when the stock market rebounded from the
COVID-19 shock in early 2020 drew people's attention," Nah said.
    
    'ELEVATED ACTIVITY'
    The booming IPO activity has also boosted prospects for the
foreign investment banks. Under local regulations, they have to
partner with a domestic bank in order to manage IPOs in Asia's
fourth-largest economy.
    "You will see the activity level elevated compared to where
it has been historically and a continuation of the Korean
capital markets being more active," said Gregor Feige, JPMorgan
 JPM.N  co-head of Asia, excluding Japan, ECM.
    Big listings like HYBE Co Ltd  352820.KS , the manager of
global boy band phenomenon BTS, and e-commerce giant Coupang Inc
 CPNG.N  in the United States have sharpened global investor
focus on Korea, Feige said.
    Global banks with their overseas networks are typically
better placed to tap large foreign investors for equity
issuance.     
    As a result, JPMorgan and Goldman Sachs  GS.N  lead the ECM
fee league table in South Korea for the first time in three
years after local banks dominated those spots since 2018, the
Refinitiv data showed.
    "What we are seeing is unique. The broadest set of companies
ever are coming to the market after having prepared and waited
throughout the initial phases of the COVID pandemic," said David
Chung, Goldman's head of Korea investment banking.    

($1 = 1,176.3900 won)
    

 (Reporting by Scott Murdoch in Hong Kong and Joyce Lee in
Seoul; Additional reporting by Heekyong Yang; Editing by Sumeet
Chatterjee and Kenneth Maxwell)
 ((Scott.Murdoch@thomsonreuters.com;))