Krafton IPO draws tepid demand from institutional investors

South Korean game developer Krafton Inc.’s initial public offering, the largest domestic IPO in the second half, drew weaker demand from institutional investors than other companies’ listings. The IPO was hundreds times oversubscribed, while others were more than 1,000 times oversubscribed. Institutional investors took conservative approach as the listing was much larger than others amid debate over high valuation.

The developer of PlayerUnknown’s Battlegrounds’ (PUBG) IPO was estimated to be 400-500 times oversubscribed during its bookbuilding process completed on July 27, according to investment banking (IB) sources. Some investors placed bids at lower-ends of the indicative range of 400,000 and 498,000 won ($346.3 and $431.2). That compared with the recent listings that most institutions proposed to buy at tops of guidance ranges or higher, according to the sources.

KakaoBank Corp., for example, was 1,733 times oversubscribed in the bookbuilding last week and drew the largest-ever amount of bids from institutional investors for a domestic listing, worth 2,585 trillion won. SD Biosensor Inc., the world’s largest COVID-19 test kit seller, was 1,144 times oversubscribed, while HK inno.N Corp. was more than 1,500 times oversubscribed.

Institutional investors did not need to place aggressive bids for Krafton as the IPO size was bigger than other listings, IB sources said. Institutional investors usually apply for a larger volume than their capabilities to receive as many shares as possible during an IPO. But they could get Krafton’s shares as ordered due to a large number of shares offered, the sources said. Krafton aims to raise as much as 4.3 trillion won by selling 8.6 million stocks. Among the total, allotted shares for institutional investors were about 3 trillion won in value.

NOT BOX-OFFICE SUCCESS

Shares allocated to its employee stock ownership association, which account about 20% of the total, may be undersubscribed, resulting in more stocks available for institutional investors, some sources said.

A lengthy bookbuilding process also affected interests among institutional investors, some sources said. Krafton conducted the bookbuilding for about two weeks from July 14 to attract foreign investors, while local companies usually carry out such process for only two days. During the two weeks, other mega IPOs such as KakaoBank allured investors.

“Competition ratio is just an illusion since institutions do not pay a deposit but place the highest bid with the largest volume,” said an IB source. “But it is still difficult to say Krafton was a box-office success since other mega IPOs such as KakaoBank were more than 1,000 times oversubscribed.”

The IPO’s underwriters, however, evaluated the bookbuilding was good enough. The process was conducted for 55-75% of the total shares offered, or 4.8 million-6.5 million stocks. It may have drawn 1,500 trillion won if they apply oversubscription of 500 times at the top of the indicative range, they said.

Investors were keeping an eye on if Krafton will stick to the top of 498,000 won. Earlier this month, it lowered the IPO share price from the initially proposed range of 458,000-557,000 won amid criticism over its high valuation followed by a request from the financial regulator to correct its registration statement. If priced at the top of the range, its market capitalization will be 24.4 trillion won, becoming the country’s leading game stock, beating Nexon with 21.7 trillion won and NCSoft Corp. with 17.7 trillion won.

The brokerage industry is concerned over potential weakness in the Krafton’s stocks after listing if the tepid bookbuilding cools off public subscription.

Krafton is set to decide the IPO price on July 29 and retail investors are scheduled to place bids on Aug. 2-3.

Write to Ye-jin Jun at ace@hankyung.com
Jongwoo Cheon edited this article.