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

Sanghyun Park

I investigate special situations, pairs, and index rebalancing trades in Korea.

Korea / Special Sits, Pairs, Index Rebalancing

FSC's Sudden Action on Local Financial Platforms: A Fatal Blow to Kakao Pay's IPO Valuation

The Korean Government Could Follow the Chinese Government in Cracking Down on the Internet Giants

Concerns Are Growing that Kakao Becomes a Political Scapegoat Ahead of the Presidential Election

Kakao Pay Listing: Revision Summary & Pricing Details

Battle Lines Drawn As BABA Builds Out First/Last-Mile Capacity; But Who Will Fund 75+ Bn CNY CapEx?

Clepsydra Capital

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

Equity Capital Markets

<p>What was the real reason for the Financial Supervisory Service's request to Kakao Pay to revise the securities report? At first, we all thought it was a price adequacy problem due to excessive valuation. However, Kakao Pay revised down the price band by only 4-6%.</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":"Indicative price band revision"}'>Indicative price band revision</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Previous"}'>Previous</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Revised"}'>Revised</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Change in %"}'>Change in %</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Lower end"}'>Lower end</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":63000}' data-sheets-numberformat='{"1":4,"2":"\"₩\"#,##0","3":1}'>₩63,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":60000}' data-sheets-numberformat='{"1":4,"2":"\"₩\"#,##0","3":1}'>₩60,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.047619047619047616}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R[0]C[-2]-R[0]C[-1])/R[0]C[-2]"><strong>4.76%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Upper end"}'>Upper end</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":96000}' data-sheets-numberformat='{"1":4,"2":"\"₩\"#,##0","3":1}'>₩96,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":90000}' data-sheets-numberformat='{"1":4,"2":"\"₩\"#,##0","3":1}'>₩90,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.0625}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R[0]C[-2]-R[0]C[-1])/R[0]C[-2]"><strong>6.25%</strong></td>
</tr>
<tr><td colspan="4" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><p>If the FSS really requested a price revision, this level (4-6%) of price revision doesn't really make sense. In fact, in terms of valuation, Kakao Bank caused more serious controversy. Nonetheless, the Financial Supervisory Service requested only Kakao Pay to revise the securities report, which, of course, is quite questionable. All this implies that the real reason shouldn't be valuation.</p><p>Surely, including Paypal and Square in the valuation peer group is absurd. Therefore, Kakao Pay excluded them and selected two new companies as valuation peers. However, that still leaves the question of whether these new valuation peers are suitable as valuation peers. This is because they are not free from the controversy over whether the business and financial similarities are sufficient.</p><p>If there were a meaningful level of price adjustment, the FSS's request for correction would have been more understandable, but it was not the case. So we should come to one conclusion. The valuation issue was secondary, and the key reason was something else. And this is also the general view of the local street at this point.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/227/830/original/Screen+Shot+2021-09-04+at+2.08.04+AM.png?1630739968" class="editor-image img-responsive" data-smartkarma-image-id="227830"></figure></section>

What was the real reason for the Financial Supervisory Service's request to Kakao Pay to revise the securities report? At first, we all thought it was a price adequacy problem due to excessive valuation. However, Kakao Pay revised down the price band by only 4-6%.








Indicative price band revision
Previous
Revised
Change in %


Lower end
₩63,000
₩60,000
4.76%


Upper end
₩96,000
₩90,000
6.25%

Source: DART

If the FSS really requested a price revision, this level (4-6%) of price revision doesn't really make sense. In fact, in terms of valuation, Kakao Bank caused more serious controversy. Nonetheless, the Financial Supervisory Service requested only Kakao Pay to revise the securities report, which, of course, is quite questionable. All this implies that the real reason shouldn't be valuation.Surely, including Paypal and Square in the valuation peer group is absurd. Therefore, Kakao Pay excluded them and selected two new companies as valuation peers. However, that still leaves the question of whether these new valuation peers are suitable as valuation peers. This is because they are not free from the controversy over whether the business and financial similarities are sufficient.If there were a meaningful level of price adjustment, the FSS's request for correction would have been more understandable, but it was not the case. So we should come to one conclusion. The valuation issue was secondary, and the key reason was something else. And this is also the general view of the local street at this point.

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