Top Korea Listing in Years Flops in Debut as IPO Fever Cools

(Bloomberg) — South Korea’s biggest new listing in more than two years got off to a weak start as LG CNS Co. fell on its Seoul trading debut after a 1.2 trillion won ($821 million) initial public offering.

Shares of the diversified technology-services unit of LG Group sank 9.9% to 55,800 won, while the broader Kospi index rose 1.1%. That’s amid concerns the stock was overpriced in the recent IPO, when it was sold at the top of the marketed range after it was snapped up by local investors.

The debut indicates investors are becoming increasingly skeptical about IPOs being a surefire way to make money in Seoul. Though first-day pops have been common for Korean listings, the overwhelming majority of them have soured in the past three months and are now below their IPO prices, according to data compiled by Bloomberg. 

“IPO stocks have been bad lately,” said Kim Dojoon, chief executive and investment officer at Seoul-based Zian Investment Management. “We probably need some traffic control as the IPO market has gotten a little overheated.” 

Out of the 35 companies that went public in Korea in the past three months, only about a quarter of them are trading above their IPO price, according to data compiled by Bloomberg. 

To encourage long-term investment, South Korean authorities announced plans to reform the IPO market last month, and some of the new rules may go into effect in time for future share sales. SK Innovation’s lubricant unit SK Enmove aims to list in June or July, Maeil Business Newspaper reported Wednesday. 

Read: Korea Targets Investors Who Spoil Trading Debuts: ECM Watch

Some investors expected that the LG unit, which competes with the likes of Samsung SDS Co., could be supported by a recovery in Korean stocks. The market slumped in December amid political turmoil but rebounded in January as stability returned. The recovery helped LG and a private equity fund of Macquarie Group Ltd., which bought a 35% stake in LG CNS in 2020, to price the shares at the top of the offered range during the IPO.

The demand during the IPO, Korea’s largest since that of affiliate LG Energy Solution Ltd. in 2022, may have been driven by the hope that the company could be a beneficiary of the artificial intelligence boom. Though many of LG CNS’s operations are established businesses such as helping set up back-end software services for companies, its executives have pledged to develop futuristic robotics technology and generative AI, launching a new team to lead the firm’s AI and cloud businesses to serve enterprise clients. 

But to Park Jinho, head of equity investment at NH-Amundi Asset Management Co., LG CNS did not look particularly cheap, given that shares of rival Samsung SDS Co. slumped 25% last year. He also blamed a lack of liquidity in the Korean market for LG CNS’s lackluster debut.

–With assistance from Dave Sebastian.

(Rewrites second and sixth paragraphs for clarity.)

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