South Korea's IPO boom leaves investment banks short changed

KakaoBank

21/01/2022 06:44

By Scott Murdoch and Heekyong Yang
    HONG KONG/SEOUL, Jan 21 (Reuters) - South Korea's equity
offering boom has created a money spinning opportunity for
issuers and investors, but it has brought little cheer to at
least one segment of the capital market: investment banks and
brokerages working on those transactions.
    LG Energy Solution Ltd's (LGES)  373220.KS  $10.8 billion
initial public offering (IPO), the largest ever in South Korea,
netted bankers working on the deal less than 1% of the proceeds,
Dealogic data showed.
    Such rates make the country one of the lowest fee-paying
major equity capital markets (ECM) in the world. 
    Hong Kong IPOs generally pay fees of 2%, in line with the
New York Stock Exchange, while Nasdaq listings net bankers an
average of 3.4%, according to Dealogic data. In 2021, the
average paid in those markets sat at 3.2%.
    The low fee payouts mean South Korea will unlikely emerge as
a major income generator for Western banks, even as the country
is witnessing a record level of capital market activity and a
new equity raising pipeline that is getting busier.
    South Korean IPOs have traditionally paid low fees compared
with other major markets, said one Hong Kong-based ECM banker
with direct knowledge of the matter.
    "Korea has never paid well, so it doesn't surprise me ...
but a few million bucks is still a few million bucks," said the
banker, who was not permitted to speak to the media and so
declined to be identified.
    Eleven investment banks and brokerage firms including Morgan
Stanley  MS.N , Bank of America Corp  BAC.N , Citigroup Inc
 C.N  and Goldman Sachs Group Inc  GS.N and local brokerage KB
Securities worked on the IPO of South Korean battery maker LGES.
    They are set to pocket a combined $75 million, the company's
IPO prospectus showed. That payment, as a portion of total funds
raised, equates to 0.7% - one of the lowest proportions paid in
a major market globally.
    The IPO, Asia's largest since Alibaba raised $12.9 billion
in its Hong Kong secondary listing in 2019, attracted $12.8
trillion worth of bids from institutional investors and $96
billion from retail investors.  urn:newsml:reuters.com:*:nL1N2TZ0ME
    LGES is not alone in paying a low fee: KakaoBank Corp
 323410.KS , which raised $2.1 billion via an IPO in July last
year, handed bankers a 0.8% base fee, while underwriters for
Krafton Inc  259960.KS  got 0.5% for their work on a $3.6
billion deal in the same month, their prospectuses showed.
    Local brokerages are, however, not complaining. 
    "We felt that getting that 0.7% commission was pretty good
enough, considering the level of the LGES deal," said a person
at a local brokerage with knowledge of the transaction. 
    "The base fee could seem lower than fees in other major
markets like New York or Hong Kong, but the LGES deal was not
necessarily too difficult for brokerage firms or banks to
handle."
    Surging deal volume in the country should also offset the
impact of the low fee base in the near term.
    More than 20 companies went public on the main market last
year, raising about 17 trillion won ($14 billion) and beating
the previous record of 8.8 trillion won raised in 2010,
according to bourse operator Korea Exchange.
    Experts said appetite for IPOs in South Korea would likely
continue into 2022 as some unicorns and e-commerce firms are
seeking to go public this year to take advantage of the IPO
market optimism.
    
    ($1 = 1,194.4000 won)

 (Reporting by Scott Murdoch in Hong Kong and Heekyong Yang in
Seoul; Editing by Sumeet Chatterjee and Christopher Cushing)
 ((Scott.Murdoch@thomsonreuters.com;))