Investment banks in South Korea pocket record fees this year amid IPO boom

Photo: Sujin Lee / Unsplash

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 IPO the largest this year followed by KakaoBank’s $2.29 billion 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.

“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 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 co-head of Asia, excluding Japan, ECM.

Big listings like HYBE Co Ltd, the manager of global boy band phenomenon BTS, and e-commerce giant Coupang Inc 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 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.

Reuters

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.