Korea's IPO market heats up with higher price cap for new stocks

South Korea’s initial public offering market is heating up with some 30 firms set for new share subscriptions in July and August, more than such offerings in the same period of 2020 and 2021 during the most recent IPO market boom. New share subscriptions will see intense competition as a new rule has raised the upper limit of stock prices on the day of listing, market insiders say.  

The local IPO market, dragged down by lukewarm demand in the second half of the last year, is rebounding with small- and mid-sized enterprises with 100 billion-200 billion won ($78.4 million-$156.9 million) market caps. The firms are eyeing the junior bourse Kosdaq, except wall pipe manufacturer Nexteel Co. which is targeting the major bourse Kospi.

While the local IPOs were focused on specific sectors like the metaverse and COVID-19 test kits last year, the firms preparing for market debut are from a wider range of industries including smart factory solutions, communication equipment, cybersecurity and cosmetics. The move came as some companies that newly listed earlier this year, such as children's furniture maker Ggumbi and cosmetics firm Manyo Factory, posted a subscription rate of more than 1,000 times. 

Among the companies eyeing July-August IPOs are Beauty Skin Corp., a cosmetics products maker, Pharos iBio Co., an artificial intelligence-powered new drug developer, MICUBE Solution, a smart factory operation services provider, Fadu, a chip design company, SecuLetter Co., a cybersecurity firm, and Smart Radar System, a 4D image radar developer. 

Market insiders say the IPOs will see high competition for subscriptions this year as a new rule for share price limits went into effect on June 26, enhancing returns on public equities.

Under the new rule, the price limit for a newly listed stock on its market debut day is between 60% of 400% of the public offering price. Previously, the range was between 63% and 260% of the offering price.

With the increased upper limit, newly listed stocks have shown a 123% return on average. That compares with 29%, the average return during the last three months before the new rule took effect.

The IPO market is amassing capital in deposits from investors for new stock subscriptions.

Philenergy, a battery manufacturing equipment maker set to be listed on July 14, pulled 15.8 trillion won in deposits from some 660,000 investors for subscription on July 6, a record amount of deposits so far this year. Shares of parent company Philoptics, hitting 21,400 won on Thursday, have soared more than 50% over the past week.

Write to Ye-Jin Jun at ace@hankyung.com

Jihyun Kim edited this article.