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SOUTH KOREA: An Introduction to Capital Markets

Korean Capital Markets Overview 

Haeng-Gyu Lee, Jipyong LLC

Amid the continuing COVID-19 pandemic, Korean capital markets flourished with activities hitting record levels – for the initial public offering (IPO) market, it has been a particularly prosperous year. According to the Korea Exchange (the “KRX”), an all-time high of 103 companies (as of 3 December 2021) were listed on the KRX in this year alone. An aggregate turnover of some KRW20.2 trillion was witnessed in this year, doubling the turnover of KRW10.1 trillion in 2010. Considering the number of companies still waiting to be listed by the end of the year, there is no doubt that 2021 will be a record bumper year for the Korean capital markets.

There are several reasons behind these all-time-high records in the Korean capital markets.

As is the case for other markets in various countries, sufficient liquidity backed by low interest rates was a key factor in boosting the capital markets. Money swiftly moved from the commercial banks and found its way into the capital markets during the pandemic to foster increased investment returns. The Bank of Korea kept the base interest rate under 1% for quite some time (this was historically low and has since been raised to 1%) to overcome the economic downturn caused by COVID-19. As was witnessed in many markets, low interest rates made investors search for potential investment opportunities that would, subsequently, bear high investment returns. This capital-driven movement globally boosted IPO markets this year.

Furthermore, a new generation of Korean investors (the so-called Dong-Hak-Gae-Mi in Korean) have shown their strong interest in participating in the Korean IPO market as they began to divide their attention, formerly fixated on the trading markets. This new generation of Korean investors tend to study global economic conditions and actively gather market data and information from various sources (such as social media) before making their investment decisions. Accordingly, many Koreans have come to realise that investing in stock markets is one of the crucial ways of managing their assets and, subsequently, increasing their wealth. The financial watchdog has also supported this mood by amending the regulations related to the allotment of publicly offered securities. Under the amended regulations, an investor participating in the public offering by depositing a minimum offering amount has an equal chance of getting the offered shares. This, in turn, has successfully drawn interest from Korean investors. An undoubtedly positive change was witnessed this year when Korean capital markets overcame their reliance on (and, thus, vulnerability towards) US and Chinese markets to some extent, with the active and robust investments of Korean investors.

It was also exciting to see companies with varying backgrounds and engagements in attractive industry sectors emerging in the Korean capital markets. A quick peak at the notable companies that went public this year is as follows: (i) biopharmaceutical companies related to COVID-19 countermeasures such as SK Bioscience Co, Ltd, Prestige BioPharma Ltd and SD BioSensor, Inc; (ii) KRAFTON, Inc, a mobile game company renowned for “Battlegrounds”; (iii) symbolic fintech companies such as KakaoBank Corp and KakaoPage; (iv) K-contents companies such as Dear U Co, Ltd, and RBW, Inc; (v) metaverse companies such as GIANTSTEP Inc, Alchera Inc and Dexter Studios Co, Ltd; (vi) public REITs such as SK REITs Co, Ltd and NH All-One REIT Co, Ltd; and (vii) Enchem Co, Ltd, a car battery equipment maker. With successful listings of companies with appealing business features, both domestic and foreign investors have readily dived into the investment opportunities on offer.

Another interesting trend in Korean capital markets observed this year is IPOs of private investment fund management companies such as venture capital firms and private equity firms. KTB Network Co, Ltd, a first-generation venture capital firm in Korea, went public this year and became the largest venture capital firm listed on the KOSDAQ Market. Several other venture capital firms such as SV Investment Corporation; Q Capital Partners Co, Ltd; AJU IB Investment Co, Ltd; Mirae Asset Venture Investment Co, Ltd; and Atinum Investment Co, Ltd have already gone public by listing on the KOSDAQ Market in recent years. It is also expected that pure private equity firms will go public by listing on the KOSPI Market in the near future. IPOs of venture capital firms and private equity firms may result in an increase in their commitments, as general partners and the investors who become shareholders (by virtue of acquiring shares) may indirectly enjoy the fruits of private investments. Recent amendments to the Financial Investment Services and Capital Markets Act of Korea that allow private equity funds to invest freely in assets without any restrictions (including, without limitation, real properties) will unquestionably be a meaningful change in the situation of private equity markets in Korea. A ripple effect may well be felt in the Korean capital markets whereby private equity firms rush to go public.

Understandably, many market participants anticipate uncertainties in the capital markets in the years ahead. Although the vaccination rate in Korea surpasses 80%, the number of confirmed cases of COVID-19 (and the Omicron variant) is rapidly increasing after adopting the so-called "With Corona" approach. Furthermore, a hazy outlook on the likely winner of the upcoming presidential election scheduled to be held on 9 March 2022 adds to the uncertainties surrounding the Korean capital markets. However, many investment bankers predict that the IPO market in 2022 will be as strong as it was this year – for example, the IPO of LG Energy Solution, Ltd, the second-largest electric car battery maker in the world, is expected to be completed in January 2022 with an expected turnover of a staggering KRW12.75 trillion. Upon successful completion, this will be the biggest IPO in the history of the Korean capital markets, which may attract the attention of Korean investors and abundant liquidity. In addition to LG Energy Solution, Ltd, IPOs of numerous giants, such as Hyundai Engineering Co, Ltd; One Store Co, Ltd; Hyundai Oilbank Co, Ltd; Socar Inc; SSG.com Corp; and Kurly Inc await in 2022. We may also witness start-ups engaged in biotechnology, metaverse, AI, blockchain, fintech and K-contents sectors going public in 2022.

Although there may be uncertainty, there will no doubt be opportunities for the Korean capital markets to develop and grow, just as they have developed and grown this year, despite the persistent COVID-19 pandemic.