Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

Equity Capital Markets

<p><strong>Kakao Bank's official bookbuilding results will be released after the market closes this afternoon. However, most of the important information has already been leaked to the market.</strong></p><p>First, more than ₩2,500T of subscription orders were poured into the bookbuilding. In addition, it was confirmed that the competition ratio of institutional investors for subscriptions was over 1,700 to 1. The competition ratio of 1,000 to 1 was already recorded on the first day, and a significant number of subscriptions were made on the second day as well.</p><p>The total value of subscription orders surpassed SKIET's ₩2,417T, which was the largest amount in history for an IPO in Korea.</p><div class="content-highlight"><p><strong>As a result, the offering price was also almost decided at ₩39,000, which is the upper end of the indicative price band.</strong></p></div><p> The market capitalization based on ₩39,000 is ₩18.6T. This is close to that of KB Financial Group (₩21.6T) and Shinhan Financial Group (₩19.9T). So, it is likely that Kakao Bank will become the largest market cap bank in Korea after its listing.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Market cap"}'>Market cap</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"KB Financial Group Inc"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>KB Financial Group</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Shinhan Financial Group Co., Ltd."}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>Shinhan Financial Group</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Kakao Bank"}'>Kakao Bank</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Ticker"}'>Ticker</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"105560"}' data-sheets-formula='="105560"'>105560</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"055550"}' data-sheets-formula='="055550"'>055550</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"323410"}' data-sheets-formula='="323410"'>323410</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Market cap"}'><strong>Market cap</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":21580.431048}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula='=googlefinance(R[-1]C[0], "shares")*googlefinance(R[-1]C[0], "price")/1000000000'><strong>₩21,580.4B</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":19940.7427844}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula='=googlefinance(R[-1]C[0], "shares")*googlefinance(R[-1]C[0], "price")/1000000000'><strong>₩19,940.7B</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"₩18,633.1B"}'><strong>₩18,633.1B</strong></td>
</tr>
<tr><td colspan="4" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX &amp; DART"}'>Source: KRX &amp; DART</td></tr>
</tbody>
</table><p>The general view of institutions on the public offering price of Kakao Bank, which has been proven in this bookbuilding, is that it is NOT ridiculously high.</p><div class="content-highlight"><p><strong>They seem to have paid attention to the growth potential of Kakao Bank as a platform business and the rapid growth that supports it.</strong></p></div><p>In fact, the price accepted as the ceiling by local street is PBR 4x, but since the upper end of the indicative price band stays at 3.5x, it is said that they generally did not feel any objection to the price.</p><table class="table table-striped">
<colgroup>
<col width="200">
<col width="150">
<col width="150">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Indicative price band"}'>Indicative price band</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Low"}'>Lower end</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"High"}'>Upper end</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Price"}'>Price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":33000}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩33,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":39000}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩39,000</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Implied market cap"}'>Implied market cap</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":15766.510221}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]' data-sheets-formula="=R[-3]C[0]*R14C2/1000000000">₩15,766.5B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":18633.148443}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]' data-sheets-formula="=R[-3]C[0]*R14C2/1000000000">₩18,633.1B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Equity, including capital inflow from IPO"}'>Equity, including capital inflow from IPO</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5009.4}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]' data-sheets-formula="=R[-13]C[0]+R[-12]C[0]">₩5,009.4B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5402.05}' data-sheets-numberformat='[null,2,"₩#,##0.0B",1]' data-sheets-formula="=R[-13]C[-1]+(Terms!R[-15]C[-1]*R[-5]C[0])/1000000000">₩5,402.1B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"PBR"}'><strong>PBR</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":3.1473849604743087}' data-sheets-numberformat='{"1":2,"2":"0.00x"}' data-sheets-formula="=R[-3]C[0]/R[-1]C[0]"><strong>3.15x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":3.449273598541294}' data-sheets-numberformat='{"1":2,"2":"0.00x"}' data-sheets-formula="=R[-3]C[0]/R[-1]C[0]"><strong>3.45x</strong></td>
</tr>
<tr><td colspan="3" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><div class="content-highlight">
<p>To clarify Kakao Bank's PBR calculations:</p>
<ol>
<li>Implied market cap by the indicative price band / Equity as of 1Q21 gives a 5.53~6.54x.</li>
<li>(Implied market cap by the indicative price band - Capital inflow from IPO) / Equity as of 1Q21 gives a 4.78~5.64x.</li>
<li><strong>Implied market cap by the indicative price band / (Equity as of 1Q21 + Capital inflow from IPO) gives you a 3.15~3.45x.</strong></li>
</ol>
<p><strong>The bankers used No. 2 to derive the indicative price band in the IPO prospectus. And many in the local street seem to be using No. 3 to get a sense of Kakao Bank's actual PBR post IPO.</strong></p>
</div><p>In particular, local institutional investors paid attention to the fact that Kakao Bank opened 6.2 million new accounts within one year. This is 40 times the total number of non-face-to-face accounts opened by 16 commercial banks in Korea over the past four years. Kakao Bank also achieved a market share of 7% in the personal credit loan market within four years of its establishment. </p><p>In other words, although Kakao Bank still provides simple banking services, the market acknowledges the actual capabilities of Kakao Bank's online platform in that it has achieved a huge customer base expansion in a short period of time.</p>

Kakao Bank's official bookbuilding results will be released after the market closes this afternoon. However, most of the important information has already been leaked to the market.First, more than ₩2,500T of subscription orders were poured into the bookbuilding. In addition, it was confirmed that the competition ratio of institutional investors for subscriptions was over 1,700 to 1. The competition ratio of 1,000 to 1 was already recorded on the first day, and a significant number of subscriptions were made on the second day as well.The total value of subscription orders surpassed SKIET's ₩2,417T, which was the largest amount in history for an IPO in Korea.As a result, the offering price was also almost decided at ₩39,000, which is the upper end of the indicative price band. The market capitalization based on ₩39,000 is ₩18.6T. This is close to that of KB Financial Group (₩21.6T) and Shinhan Financial Group (₩19.9T). So, it is likely that Kakao Bank will become the largest market cap bank in Korea after its listing.








Market cap
KB Financial Group
Shinhan Financial Group
Kakao Bank


Ticker
105560
055550
323410


Market cap
₩21,580.4B
₩19,940.7B
₩18,633.1B

Source: KRX &amp; DART

The general view of institutions on the public offering price of Kakao Bank, which has been proven in this bookbuilding, is that it is NOT ridiculously high.They seem to have paid attention to the growth potential of Kakao Bank as a platform business and the rapid growth that supports it.In fact, the price accepted as the ceiling by local street is PBR 4x, but since the upper end of the indicative price band stays at 3.5x, it is said that they generally did not feel any objection to the price.







Indicative price band
Lower end
Upper end


Price
₩33,000
₩39,000


Implied market cap
₩15,766.5B
₩18,633.1B


Equity, including capital inflow from IPO
₩5,009.4B
₩5,402.1B


PBR
3.15x
3.45x

Source: DART


To clarify Kakao Bank's PBR calculations:

Implied market cap by the indicative price band / Equity as of 1Q21 gives a 5.53~6.54x.
(Implied market cap by the indicative price band - Capital inflow from IPO) / Equity as of 1Q21 gives a 4.78~5.64x.
Implied market cap by the indicative price band / (Equity as of 1Q21 + Capital inflow from IPO) gives you a 3.15~3.45x.

The bankers used No. 2 to derive the indicative price band in the IPO prospectus. And many in the local street seem to be using No. 3 to get a sense of Kakao Bank's actual PBR post IPO.
In particular, local institutional investors paid attention to the fact that Kakao Bank opened 6.2 million new accounts within one year. This is 40 times the total number of non-face-to-face accounts opened by 16 commercial banks in Korea over the past four years. Kakao Bank also achieved a market share of 7% in the personal credit loan market within four years of its establishment. In other words, although Kakao Bank still provides simple banking services, the market acknowledges the actual capabilities of Kakao Bank's online platform in that it has achieved a huge customer base expansion in a short period of time.

Kakao Bank Bookbuilding: What's Really Happened Among Local Institutions?

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a> has seen a rapid rise in ownership among global emerging market investors.</p><p><a href="https://www.smartkarma.com/entities/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a> now sits among the big players in the sector, just behind <a href="https://www.smartkarma.com/entities/naspers-ltd" target="_blank" data-smartkarma-citation="entities:21085:1" rel="noopener">Naspers (NPN SJ)</a> and in line with <a href="https://www.smartkarma.com/entities/netease-inc-adr" target="_blank" data-smartkarma-citation="entities:17203:1" rel="noopener">NetEase Inc (NTES US).</a></p><p>Recent Activity shows <a href="https://www.smartkarma.com/entities/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a> capturing the most new investors in 2021 among South Korean peers, with the funds invested percentage rising by 5% - marginally ahead of <a href="https://www.smartkarma.com/entities/kakao-corp" target="_blank" data-smartkarma-citation="entities:15002:1" rel="noopener">Kakao Corp (035720 KS)</a> and <a href="https://www.smartkarma.com/entities/lx-holdings" target="_blank" data-smartkarma-citation="entities:33384:1" rel="noopener">LX Holdings (383800 KS).</a></p><p>All this points to <a href="https://www.smartkarma.com/entities/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a> as a high conviction holding among active EM managers, and whilst a combination of record investment and price levels leaves <a href="https://www.smartkarma.com/entities/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a> vulnerable to consolidation, there are many previous investors who may pick up the slack if prices fall.</p>

Naver Corp (035420 KS) has seen a rapid rise in ownership among global emerging market investors.Naver Corp (035420 KS) now sits among the big players in the sector, just behind Naspers (NPN SJ) and in line with NetEase Inc (NTES US).Recent Activity shows Naver Corp (035420 KS) capturing the most new investors in 2021 among South Korean peers, with the funds invested percentage rising by 5% - marginally ahead of Kakao Corp (035720 KS) and LX Holdings (383800 KS).All this points to Naver Corp (035420 KS) as a high conviction holding among active EM managers, and whilst a combination of record investment and price levels leaves Naver Corp (035420 KS) vulnerable to consolidation, there are many previous investors who may pick up the slack if prices fall.

Naver Corp (035420 KS):  Soaring in to the Big League

<p>It has been reported that Kakao Pay is considering delaying its listing to September. This is because of the 135-day rule that a company undergoing an IPO must complete the listing procedure within 135 days from the date of preparation of the financial statements.</p><div class="content-highlight"><p><strong>According to this regulation, Kakao Pay must complete the listing within August 13, 135 days from the date of the 1Q21 financial statements.</strong></p></div><hr><h2>What is the 135-day rule?</h2><p><strong>The 135-day rule is a rule on the expiration date of accounting settlement data reflected in the IPO prospectus and the securities declarations for overseas investors.</strong></p><p>The important point here is that KRX does not have any rule similar to the 135 rule.</p><p>On the other hand, the US Securities and Exchange Commission stipulates that all listing schedules, including payment, be completed within 135 days from the time the financial statements stated in the IPO prospectus are prepared.</p><p><strong>So why should Kakao Pay care about the 135-day rule?</strong></p><div class="content-highlight"><p><strong>This rule does not apply to domestic investors, but it inevitably applies when a newly listed company with a large IPO size needs to raise funds abroad that are within the jurisdiction of the SEC.</strong></p></div><h2>When is the deadline for the initial IPO prospectus?</h2><p>If listing proceeds based on the financial statements at the end of the first quarter, March 31 will become the base date. So, the last business day of the 135-day rule will be <strong>August 13</strong>.</p><div class="content-highlight"><p><strong>For this reason, Kakao Pay's listing date was set for August 12, despite concerns about overlapping demand with Kakao Bank.</strong></p></div><p>That is, August 12, the scheduled listing date of Kakao Pay, was a really tight schedule. Therefore, the fact that the Financial Supervisory Service requested a revised report was risking that the listing schedule would be significantly pushed back.</p><h2>How long will the schedule be delayed?</h2><p>In the end, the 135-day rule was not met based on the 1Q financial statements, so the IPO prospectus has to be rewritten based on the 2nd quarter financial statements.</p><p><strong>This means that the IPO schedule has to be adjusted in line with the submission of the 2Q financial report to be published in mid-August.</strong></p><div class="content-highlight"><p><strong>In this case, considering that it will take at least a month or more to complete the listing process, including the FSS review period, it is expected that the company will be listed at the end of September at the earliest. In other words, at this point, the possibility of an October listing should remain open.</strong></p></div>

It has been reported that Kakao Pay is considering delaying its listing to September. This is because of the 135-day rule that a company undergoing an IPO must complete the listing procedure within 135 days from the date of preparation of the financial statements.According to this regulation, Kakao Pay must complete the listing within August 13, 135 days from the date of the 1Q21 financial statements.What is the 135-day rule?The 135-day rule is a rule on the expiration date of accounting settlement data reflected in the IPO prospectus and the securities declarations for overseas investors.The important point here is that KRX does not have any rule similar to the 135 rule.On the other hand, the US Securities and Exchange Commission stipulates that all listing schedules, including payment, be completed within 135 days from the time the financial statements stated in the IPO prospectus are prepared.So why should Kakao Pay care about the 135-day rule?This rule does not apply to domestic investors, but it inevitably applies when a newly listed company with a large IPO size needs to raise funds abroad that are within the jurisdiction of the SEC.When is the deadline for the initial IPO prospectus?If listing proceeds based on the financial statements at the end of the first quarter, March 31 will become the base date. So, the last business day of the 135-day rule will be August 13.For this reason, Kakao Pay's listing date was set for August 12, despite concerns about overlapping demand with Kakao Bank.That is, August 12, the scheduled listing date of Kakao Pay, was a really tight schedule. Therefore, the fact that the Financial Supervisory Service requested a revised report was risking that the listing schedule would be significantly pushed back.How long will the schedule be delayed?In the end, the 135-day rule was not met based on the 1Q financial statements, so the IPO prospectus has to be rewritten based on the 2nd quarter financial statements.This means that the IPO schedule has to be adjusted in line with the submission of the 2Q financial report to be published in mid-August.In this case, considering that it will take at least a month or more to complete the listing process, including the FSS review period, it is expected that the company will be listed at the end of September at the earliest. In other words, at this point, the possibility of an October listing should remain open.

Accurate Facts About the Application of Kakao Pay's 135-Day Listing Date Rule

<p>In a regulatory filing on July 16 (later today), the Financial Supervisory Service said that it had requested Kakao Pay to revise its IPO prospectus. As a result, the IPO prospectus submitted by Kakao Pay earlier this month has been suspended.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/218/913/original/Screen+Shot+2021-07-16+at+10.12.05+AM.png?1626444842" class="editor-image img-responsive" data-smartkarma-image-id="218913"></figure></section><p>Kakao Pay must submit a revised report within three months, and if it is not submitted, it is considered a withdrawal of the public offering.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/218/914/original/Screen+Shot+2021-07-16+at+10.20.56+AM.png?1626445364" class="editor-image img-responsive" data-smartkarma-image-id="218914"></figure><div class="content-highlight"><p><a href="http://dart.fss.or.kr/dsaf001/main.do?rcpNo=20210716100004" target="_blank" rel="noopener">Here is the link to the regulatory filing. (DART)</a></p></div></section>

In a regulatory filing on July 16 (later today), the Financial Supervisory Service said that it had requested Kakao Pay to revise its IPO prospectus. As a result, the IPO prospectus submitted by Kakao Pay earlier this month has been suspended.Kakao Pay must submit a revised report within three months, and if it is not submitted, it is considered a withdrawal of the public offering.Here is the link to the regulatory filing. (DART)

Kakao Pay to Revise Offering Price: Reasons & Schedule Impacts on Kakao Bank & Krafton

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<div class="content-highlight">
<p>On 16 July, FSS (Financial Supervisory Service) requested <a href="https://www.sedaily.com/NewsView/22OXPDP6O5" target="_blank" rel="noopener">Kakao Pay</a> to revise the IPO prospectus filings and postpone the IPO process. The book building for Kakao Pay was originally supposed to start on 29 July. Now, this will get postponed. </p>
<p>One of the key reasons why FSS has decided to postpone the Kakao Pay IPO is likely because of the numerous complaints from institutional investors that the IPO price range (especially high end) is too high. As a result, FSS requested the correction and supplementation of the IPO filing submitted by Kakao Pay. </p>
</div>


On 16 July, FSS (Financial Supervisory Service) requested Kakao Pay to revise the IPO prospectus filings and postpone the IPO process. The book building for Kakao Pay was originally supposed to start on 29 July. Now, this will get postponed. 
One of the key reasons why FSS has decided to postpone the Kakao Pay IPO is likely because of the numerous complaints from institutional investors that the IPO price range (especially high end) is too high. As a result, FSS requested the correction and supplementation of the IPO filing submitted by Kakao Pay. 


FSS Requests Kakao Pay to Revise IPO Filings & Postpone IPO Process

South Korea

Kakao Corp. provides Internet portal services such as news, free e-mail, and leisure information.  The Company also offers cross-platform mobile messaging application that allows users to exchange messages.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Kakao Corp (035720 KS)

Kakao Bank Bookbuilding: What's Really Happened Among Local Institutions?

Most of the important information about Kakao Bank's bookbuilding results has already been leaked. This post explains circumstantial factors...

Sanghyun Park

Naver Corp (035420 KS): Soaring in to the Big League

Naver Corp has seen a rapid rise in ownership among global EM investors. Naver Corp now sits among the big players in the sector, just behind...

Steven Holden

Accurate Facts About the Application of Kakao Pay's 135-Day Listing Date Rule

This post provides accurate facts about the application of Kakao Pay's 135-Day listing date rule and discusses the reasons behind the FSS's...

Sanghyun Park

Kakao Pay to Revise Offering Price: Reasons & Schedule Impacts on Kakao Bank & Krafton

In a regulatory filing on July 16, the Financial Supervisory Service said that it had requested Kakao Pay to revise its IPO prospectus.

Sanghyun Park

FSS Requests Kakao Pay to Revise IPO Filings & Postpone IPO Process

On 16 July, FSS requested Kakao Pay to revise the IPO prospectus filings and postpone the IPO process. It is likely that the IPO price range of...

Douglas Kim

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52-week Range

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