The high degree of South Korean firms' stock holding by venture capitalists has dragged down their shares in the first month after going public, data showed on Aug. 6.
Such investors, who primarily seek financial gains instead of strategic partnerships, are highly likely to sell off their stake within the first month after listing, according to an analysis by SK Securities. It added the sell-off leads to more floating stocks and therefore hampers the share price.
The average weekly return of listed companies came to 34 percent from the price initially offered to public, if less than a combined 10 percent stake is owned by VCs and investment professionals. The figure was 17 percentage points higher compared to ones with over 10 percent stake owned by such investors.
The return gap widens to 19 percentage points when it comes to the returns in the first month, but in terms of two-month gain, the gap reduces to 2 percentage points.
The analysis was based on data comprising 152 listed firms from January 2017 to May 2019, according to SK Securities.
After the first month, however, the impact is limited, because the VCs’ restriction in selling shares to public lasts no longer than one month. According to Kosdaq regulations, VCs and investment professionals that held stocks for less than two years are subject to a one-month IPO lock-up period. Otherwise, they may sell off shares upon the listing.
The report comes as the Korean stock market is facing a triple whammy due to Japan’s economic retaliation, doubts about biotech sector and trade tensions between China and the United States.
“As long as the external impacts on the market do not die down, those investing in private companies on the verge of an IPO should focus on how much stake is held by VCs and investment professionals,” SK Securities analyst Lee So-joong wrote in a report on Aug. 6.
As of Aug. 6, 19 out of 29 companies listed on the Kosdaq market this year are trading lower than the offered price. On the top-tier Kospi, there were two companies that began trading this year, and one of them is trading lower than the IPO price.
By Son Ji-hyoung (firstname.lastname@example.org)