South Korea’s IPO boom leaves investment banks short of change

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HONG KONG/SEOUL — South Korea’s equity offering boom has created a cash-spinning opportunity for issuers and investors, but it has brought little joy to at least one segment of the capital market: investment banks and brokerage houses working on these transactions.

LG Energy Solution Ltd’s (LGES) $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, according to Dealogic data.

Such rates make the country one of the lowest paying major equity capital markets (ECM) in the world.

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Hong Kong IPOs typically pay 2% fees, in line with the New York Stock Exchange, while Nasdaq net banker listings average 3.4%, according to Dealogic data. In 2021, the average paid in these markets was 3.2%.

Low fee payments mean South Korea is unlikely to become a major source of revenue for Western banks, even as the country sees a record level of capital market activity and a new fundraising pipeline that becomes more and more active.

South Korean IPOs have traditionally paid low fees compared to other major markets, said a 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 dollars is still a few million dollars,” said the banker, who was not authorized to speak. to the media and therefore declined to be identified.

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Eleven investment banks and brokerage firms including Morgan Stanley, Bank of America Corp, Citigroup Inc and Goldman Sachs Group Inc and local brokerage firm KB Securities worked on the IPO of South Korean battery maker LGES .

They are expected to pocket a total of $75 million, according to the company’s IPO prospectus. This payment, as part of the total funds raised, is equivalent 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 secondary listing in Hong Kong in 2019, drew $12.8 trillion in bids from institutional investors and $96 billion from retail investors.

LGES isn’t alone in paying low fees: KakaoBank Corp, which raised $2.1 billion via an IPO in July last year, paid bankers a base fee of 0.8 %, while Krafton Inc underwriters got 0.5% for their work on a $3.6 billion deal in the same month, their prospectuses showed.

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Local brokers aren’t complaining about it though.

“We felt that getting that 0.7% commission was pretty good, given the level of the LGES deal,” said a person at a local brokerage with knowledge of the transaction.

“Base fees may seem lower than fees in other major markets like New York or Hong Kong, but the LGES deal wasn’t necessarily too difficult for brokerage firms or banks to manage.”

The increased trading 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 exchange operator Korea. Exchange.

Experts said the appetite for IPOs in South Korea is likely to continue into 2022 as some unicorns and e-commerce companies seek to go public this year to take advantage of 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)

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