South Korean financial regulators are increasing their scrutiny of companies looking to launch initial public offerings because of increasing concerns of an unsustainable bubble in the Asian market.
Analysts said the valuations of listings of companies from industries such as biotechnology, shipbuilding and video games have all surged to unsustainable levels, leading to concerns of another stock market bubble. South Korea's offering market has entered a record year, with the valuations of some companies more than doubling from their trading debuts.
Last week, financial regulators pressured Krafton - the company behind the video game PlayerUnknown's Battlegrounds - to reduce its offering targets. The company cut its offering price by more than 10% and reduced its transaction size by nearly a quarter. The company was initially aiming to raise up to $5 billion, which would have been the largest listing in South Korea.
The Financial Supervisory Service of South Korea said Krafton agreed to reduce its initial public offering size to $3.8 billion as per its recommendations. The service also asked Krafton to resubmit its prospectus. Krafton said it expected to list its shares Aug. 10.
"We asked the company to remove some uncertainties that could affect investor judgment. We need more information about how the company calculated the price of the initial public offering and whether there are any particular similarities with the company in comparison," service officials said.
Analysts said regulators are trying to mitigate risks for investors, who may be swayed by false or bloated fundamentals.
"Companies tend to raise initial public offering prices compared to fundamentals because of strong demand. Regulators are concerned about potential investor criticism if a company fails to respond to hype," analysts at Korea Capital Markets Institute said.
Apart from Kraton's upcoming offering, analysts were concerned about the overvalued companies such as KakaoBAnk. The online lender is seeking to raise $2.3 billion during its planned offering later this month. The listing will push the bank's market valuation beyond those of other traditional lenders in the country.
"We don't want regulators to intervene in initial public offering pricing. Offering prices need to be market-determined. But the current high valuation means a limited upside potential, so prices could go down," analysts said.
