IPO Rush: 36 Firms Line Up, But 86% of KOSDAQ Newbies Trade Below Offer Price

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Slow Recovery: IPO Funding Falls Short Despite Increased Listings

The number of IPOs has rebounded, but the scale of funding remains below last year's levels. According to IR Cuders, the IPO fundraising amount for the first three quarters of this year was KRW 1.63 trillion, a 52.1% decrease from the same period last year, which stood at KRW 3.40 trillion. Given the significant impact of the absence of large IPOs, the recent increase in listing numbers alone does not indicate a full recovery of the IPO market.

New Listings Struggle: 86% Trade Below Offer Price, Outpacing KOSDAQ's Decline

An analysis by Market Times of the 'Stock Price Change Rate Compared to Offer Price' data from the Korea Exchange's Corporate Disclosure Channel, KIND, reveals that as of October 21st, 31 out of 36 (86.1%) newly listed companies on KOSDAQ this year traded below their offer prices. SPACs and companies that listed on the same day were excluded from the analysis.

The underperformance of new listings was particularly evident during the recent market correction. From October 7th to 16th, the average price decline of seven companies that listed in September was 37.43%, outpacing the KOSDAQ index's drop of 11.54% during the same period.

Market Performance and Upcoming Changes in IPO Pricing

Despite a notable number of instances where the initial public offering (IPO) price was set at the upper end of the desired range during the institutional demand forecast stage, the subsequent market evaluation has often differed. There has been a pattern where the investment demand at the time of IPO pricing fails to sustain the stock price post-listing.

**Waizepleunetcompeonye:** On its first day of listing, Waizepleunetcompeonye's stock price surged an impressive 285.83% above its IPO price, but the closing price on the 21st was 8,700 won, a 27.50% decrease from its IPO price of 12,000 won.

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**Deoksannepkoaseu:** Similarly, Deoksannepkoaseu's stock price rose by 23.15% on its first day of trading, but on the 21st, it closed at 9,030 won, a 38.15% drop from its IPO price of 14,600 won.

These examples illustrate how high returns on the first day of trading do not always guarantee sustained stock price performance.

As such, with the continued underperformance of newly listed stocks, changes are also afoot regarding IPO pricing and institutional investor allocation schemes, which will come into effect next month.

The Financial Services Commission plans to implement a pre-demand forecasting system from November 13th onwards, allowing underwriters to gauge the purchase price and quantity preferences of institutional investors before the submission of the securities registration statement. This initiative aims to enhance the rationality of IPO pricing by reflecting actual institutional demand from the initial stage of determining the desired IPO price range, set by the company and underwriters.

The Introduction of Cornerstone Investor Scheme

A new scheme, known as the Cornerstone Investor scheme, will be implemented, allowing institutional investors who commit to holding stocks for a certain period to receive an early allocation of IPO shares. The Financial Services Commission's proposed amendment to the subsidiary regulations outlines that 50% of the pre-allocated shares must be locked up for six months, 30% for eight months, and the remaining 20% for ten months. This measure aims to reduce the burden of concentrated institutional selling pressure immediately after the IPO or at specific time points.

Challenges for the IPO Market

Despite the upcoming IPOs of several new companies towards the end of the year, the market faces challenges as most existing listed stocks have failed to recover their IPO prices. As we approach the November regulatory overhaul, the fairness of IPO pricing and the stability of post-IPO stock prices have emerged as critical factors in gauging the credibility of the new listings market.