South Korea’s IPO bust clouds equity markets as Chaebol structure restrains listings

South Korea’s equity IPO exercise has plummeted this 12 months as efforts to spice up company valuations run into hassle round governance reforms and the excessive quantity Chaebols, or family-run conglomerates.

South Korea noticed 15 new listings within the 12 months to June 3, with proceeds totaling round $700 million, in accordance with LSEG knowledge. By comparability, new listings averaged 80 per 12 months between 2020 and 2025, with round $8 billion, the information present. Malaysia’s new listings and proceeds nearly double South Korea’s.

Against this, the Kospi is the top-performing main index worldwide, greater than doubling in worth within the 12 months to Monday.  

Chaebols, which have been as soon as central to South Korea’s industrial growth, at the moment are “extra of a hindrance than a assist for creating new, independently listed champions,” in accordance with Polka Mishra, accomplice at Javelin Wealth Administration in Singapore. South Korea’s inheritance tax of fifty% for quantities exceeding 3 billion received ($2 million) provides conglomerates an incentive to preserve valuations and free float low, she mentioned.

At concern: In 2024, South Korea launched the “Company value-up initiative” to finish the so-called “Korea low cost,” wherein shares commerce at decrease ranges than abroad friends. The nation made three rounds of amendments to the Industrial Act to enhance minority shareholder safety and company governance. 

The 5 largest conglomerates – Samsung, SK, Hyundai Motor, LG, and HD Hyundai – accounted for round 70% of South Korea’s equity market cap as of Monday, in accordance with Korea Alternate knowledge

Guardian-subsidiary listings, which check with a unit pursuing its personal itemizing, will “be prohibited as a basic precept,” Korea Alternate CEO Jeong Eun-bo informed CNBC on June 11. They are often seen as diluting the mother or father firm’s worth on the expense of minority shareholders whereas letting controlling households retain management of the newly listed subsidiary.  

Measured by the worth of cross-held shares between listed mother or father firms and their subsidiaries, these accounted for round 11% of South Korea’s whole market cap as of final 12 months, in accordance with the Monetary Providers Fee, in contrast with about 4% in Japan and three% in Taiwan.

South Korea’s market operator plans to direct capital to new firms by delisting round 300 firms by subsequent 12 months, Korea Alternate’s Jeong mentioned.  

The Korea Alternate is encouraging new listings whereas swiftly eradicating bancrupt firms from the market, Jeong mentioned. Finally, “in order that we are able to minimize off unfair buying and selling practices and broaden entry for brand new ventures looking for to listing.”  

Whereas the decline in numbers has raised mother or father firms’ valuations, the slowdown has dampened the fundraising and exit surroundings for enterprise capital funds, mentioned Lee Hyo-seob, senior analysis fellow on the assume tank Korea Capital Market Institute in Seoul.  

The IPO slowdown suggests the market is “evolving right into a extra selective, quality-driven market, with capital more and more concentrated in a narrower set of sectors and issuers,” mentioned Jungik Park, IPO chief for South Korea at EY.

South Korea already has a “excessive quantity” of listed firms, totaling round 2,700, Park mentioned. That is roughly half the quantity within the U.S., regardless that South Korea’s equity market cap is solely a fraction of that of the U.S. 

The restricted IPO exercise in South Korea is a double-edged sword for the broader capital market, mentioned Korea Capital Market Institute’s Lee.

Whereas fewer parent-subsidiary listings have raised mother or father firms’ valuations, the slowdown has dampened the fundraising and exit surroundings for enterprise capital funds, Lee mentioned.  

Nonetheless, Jeong of Korea Alternate mentioned the drop in IPOs mirrored a transitional part within the nation’s efforts to increase company valuations.    

“As soon as the federal government points clearer tips on parent-subsidiary listings, I anticipate firms to maneuver ahead extra actively with their itemizing processes,” he mentioned.

Going ahead, analysts anticipate AI infrastructure firms to make up the bulk of South Korea’s IPO pipeline, reflecting the nation’s stronghold within the chip sector led by Samsung Electronics and SK Hynix.  

“Semiconductor and AI knowledge facilities require monumental capital expenditure and long-term capital deployment, which means there are limits to what non-public capital alone can do,” Kang Jin-hyuk, a senior analyst at Shinhan Securities, mentioned in a report printed on Could 22.  

“Finally, the position of public funding and industrial monetary help turns into much more necessary for the expansion of Korea’s AI trade,” Kang mentioned. He cited the instance of the state-led Nationwide Progress Fund’s investments of round $130 million in every of the AI chip startups Rebellions and FuriosaAI.