South Korea's IPO boom is almost unchanged for investment banks
South Korea's IPO boom has created money-making opportunities for issuers and investors, but has brought little satisfaction to at least one segment of the capital market: the investment banks and brokerage firms working on the deals. According to CFD stocks, the $10.8 billion initial public offering (IPO) of LG Energy Solution Ltd (LGES), the largest in South Korean history, brought in less than 1% of the proceeds for the bankers working on the deal. Such stakes make the country one of the lowest-paid large equity capital markets (ECMs) in the world. Hong Kong IPOs typically pay a commission of 2%, as does the New York Stock Exchange, while Nasdaq net banker listings average 3.4%, according to Dealogic. In 2021, the average fee in these markets was 3.2%. Low fees mean that South Korea is unlikely to become a major generator of revenue for western banks, even though the country is experiencing record levels of capital market activity and a new capital raising stream that is becoming increasingly crowded. South Korean IPOs have traditionally paid low fees compared to other major markets, said one Hong Kong-based ECM banker with direct knowledge of the matter. "Korea has never paid well, so it doesn't surprise me... but a few million dollars is still a few million dollars," said the banker, who was not allowed to speak to the media and so declined to give his name. Eleven investment banks and brokerage firms, including Morgan Stanley, Bank of America Corp, Citigroup Inc and Goldman Sachs Group Inc, as well as local brokerage firm KB Securities worked on the IPO of South Korean battery maker LGES. According to the company's IPO prospectus, they are looking to raise a total of $75 million. This payment, as part of the total amount raised, is 0.7% - one of the lowest proportions paid in a major market in the world. The IPO, Asia's largest since Alibaba raised $12.9 billion on a secondary listing in Hong Kong in 2019, has attracted bids of $12.8 trillion from institutional investors and $96 billion from retail investors. LGES isn't the only one paying a low fee: KakaoBank Corp, which raised $2.1 billion through an IPO last July, handed bankers a base fee of 0.8%, while underwriters Krafton Inc got 0.5% for its work on the $3.6 billion deal in the same month, their prospectuses showed. However, local brokers are not complaining. "We felt getting that 0.7% commission was good enough given the level of the LGES deal," said a person at a local brokerage firm with knowledge of the deal. "The base fee may seem lower than in other major markets such as New York or Hong Kong, but the LGES deal was not necessarily too difficult for brokerage firms or banks." The growing volume of transactions in the country should also offset the impact of the low fee base in the near future. More than 20 companies went public on the main market last year, raising about 17 trillion won ($14 billion) and breaking the previous record of 8.8 trillion won raised in 2010, according to exchange operator Korea Exchange. Experts say the appetite for IPOs in South Korea is likely to continue in 2022, as some unicorn companies and e-commerce firms seek to go public this year to take advantage of the optimism of the IPO market. See also: Data shows dollar weakening, stocks rise on consumer price hike in November
