On May 8, 2013, Paul Hastings hosted its annual Asian Century Forum in Seoul in association with the Financial Times and KOTRA. At the Forum, many senior policy-makers, financial and corporate decision-makers and key advisors participated as speakers to share their insights on the investment and partnership opportunities surrounding the global expansion of Korean businesses, and the challenges that need to be overcome for those opportunities to be maximized. After the keynote address on major challenges and opportunities facing the Korean economy by Dr. SaKong, the Chairman and CEO of the Institute for Global Economics, a plenary panel discussion on the Korean economy in general followed by breakout panel sessions on outbound M&As, overseas securities offerings, U.S. litigation and energy investments took place. This article will focus on the topics discussed at the capital markets panel, including a trend in Korean companies’ overseas listings and initial public offerings.
In 1994, POSCO was the first-ever Korean company to list on the New York Stock Exchange. Since then, several blue-chip corporate issuers and financial institutions have followed suit, listing their American Depositary Receipts (generally known as ADRs and which facilitate payment of dividends and trading in the U.S.) on the NYSE in the late 1990s and early 2000s. These issuers included Korea Telecom, SK Telecom, KEPCO, LG Display, KB Financial Group, Woori Financial Group and Shinhan Financial Group. Meanwhile, a few start-up companies in the technology sector sought listings on Nasdaq, which generally offered the most favorable valuation to tech companies. For example, Thrunet Inc. listed its ADRs on Nasdaq in 1999 amidst the Internet bubble, although it later delisted, while companies like G-market, Gravity and Pixelplus listed on Nasdaq in the mid-2000s. Since the mid-2000s, however, listings in the United States became less popular among Korean issuers (like other non-U.S. issuers), due in part to the tightened corporate governance standards and certification requirements under the Sarbanes-Oxley Act. Instead, Korean companies seeking to raise money from foreign investors sought other listing venues such as London or Singapore. For example, STX Pan Ocean listed its shares on the Singapore Exchange in 2005 and Lotte Shopping listed its shares on the London Stock Exchange and the Korea Exchange simultaneously in 2006, raising $3.7 billion.
In 2007, the amendment of the listing rules in Korea brought about a significant change in Korean companies’ equity financings from foreign investors by permitting Korean companies listing on the Korea Exchange to offer their shares to foreign investors in the IPO process. Since then, most of the large IPOs in Korea, such as the IPOs of Samsung Life, the largest ever by a Korean issuer, Samsung Card, Mando, Hi-mart and CJ HelloVision, featured an overseas tranche which was offered to institutional investors in the U.S. and other foreign countries. The growth of the Korea Exchange in size and the recognition of it as a reliable market among foreign institutional investors also contributed to this trend.
Looking at more recent developments, in 2012 and the first half of 2013, the Korean IPO market experienced a slowdown. This was mainly due to poor financial results of potential issuers caused by the domestic and global economic downturn, as well as unstable and inactive secondary equity markets trading in Korea. The IPO market in Asia generally suffered last year as well with companies shelving their plans to list because of a weak economic outlook. The total value of Asian IPOs fell by 35% to $57.1 billion in 2012 from $87.8 billion in 2011. These days, many companies find debt financings more attractive than equity financings in the environment of low interest rates and ample liquidity. The outlook for the Korean IPO market in the second half of 2013 remains unclear as the economic conditions in Korea and globally still remain sluggish. However, it may gain momentum if large IPOs by companies like Hyundai Rotem are successfully completed.
Another recent trend of overseas equity financing involves secondary listings of global depositary receipts on foreign exchanges, such as the Singapore Exchange, by companies already listed on the Korea Exchange. OCI Company and Youngone Corporation issued GDRs in this manner, which enabled them to issue shares at better prices than in domestic offerings. This trend may continue among issuers that have stable financial results and business portfolios attractive to foreign investors. Another interesting development is IPOs in Hong Kong by Chinese subsidiaries of Korean companies. Many Korean companies have sizable China businesses and a few of them, such as E-land and Mando, have already tried listing their Chinese business in Hong Kong. While these efforts have not been successful so far, they may come to fruition as Chinese businesses of Korean companies grow further.
Paul Hastings LLP is a leading international law firm with 20 offices in Asia, Europe and the United States that provides innovative legal solutions to many of the world’s top financial institutions and Fortune Global 500 companies. Paul Hastings opened its Seoul office in November 2012 and provides a wide range of legal services to both Korean companies and foreign companies doing business in Korea.
This article first appeared in AMCHAM Korea’s quarterly magazine, Journal (Vol. 80, No. 3).