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South Korea’s IPO boom leaves investment banks short changed -Breaking

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© Reuters.

By Scott Murdoch and Heekyong Yang

HONG KONG/SEOUL – The South Korean equity offering boom created a wealth of money for investors and issuers, but has not brought much joy to the investment banks and brokerages that handle these transactions.

Dealogic data revealed that the $10.8 billion LG Energy Solution Ltd (LGES) initial public offering (IPO) netted less than 1% to bankers who were involved in the transaction.

This rate makes the country among the best-funded major equity capital markets in the world (ECM).

Dealogic data shows that Hong Kong IPOs pay fees at 2%. That is the same as New York Stock Exchange. But, bankers receive an average 3.4% from Nasdaq listing. The average fee paid on these markets was 3.2% in 2021.

South Korea’s low fees mean that it will not be a significant income source for Western banks. This is despite the fact that South Korea is experiencing record levels of capital market activity, and an increase in equity raising.

According to one Hong Kong-based ECM Banker, South Korean IPOs typically pay lower fees than other major markets.

The banker said that Korea has not paid well so it does not surprise me. However, a few millions dollars is still a lot,” he declined to identify himself as he was not allowed to talk to the media.

Eleven investment banks and brokerage companies, Morgan Stanley (NYSE:), Bank of America Corp. (NYSE:), Citigroup Inc (NYSE: Goldman Sachs Group (NYSE: ) Incand local brokerage KB Securities participated in the IPO South Korean Battery Maker LGES.

According to the prospectus for the company’s IPO, they will each pocket $75 million. As a percentage of total funds raised this payment is 0.7%, which is one of the lowest amounts paid in major markets globally.

Asia’s biggest IPO since 1997 Alibaba (NYSE) Attracted $12.8 Trillion from institutional investors. Retail investors were able to bid $96 Billion.

LGES does not pay a high fee. KakaoBank Corp, which has raised $2.1 billion through an IPO, paid 0.8% to bankers, and Krafton Inc received 0.5%. Krafton Inc’s prospectuses show that Krafton Inc had 0.5%. Krafton Inc also charged 0.5% underwriters for the $3.6 billion deal they completed in the same month.

But local brokerages do not complain.

A local broker with experience in the transaction said that they felt the 0.7% commission was fair.

Although the base fee might seem to be lower than those in New York, Hong Kong or other major cities like New York, it is not difficult for banks and brokerages to manage LGES deals.”

The country’s growing deal volume should offset any negative effects of the current low fees.

Last year saw more than twenty companies go public, raising approximately 17 trillion won ($14billion) to surpass the record 8.8 trillion won set in 2010.

Experts predict that South Korea will see a continued appetite for IPOs into the future, with some unicorns and ecommerce businesses seeking to become public in order to benefit from the IPO market optimism.

($1 = 1,194.4000 won)

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