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Will Big Hit log record-breaking IPO subscription?

K-pop agency’s IPO grabs global attention, experts say BTS’ worldwide fandom key to further value increase

BTS (Big Hit Entertainment)
BTS (Big Hit Entertainment)
Like it did in the global entertainment scene, the agency behind K-pop sensation BTS is likely to wow South Korea’s stock market and its investors with what is widely expected to be the biggest initial public offering of the year.

A total of 1,420 domestic and foreign institutional investors, including BlackRock and Singapore’s GIC, participated in the two-day book building, which wrapped up on Sept. 25.

Competition for the 4.27 million shares, 60 percent of the new shares issued, was 1,117-1. Big Hit stock is being offered at 135,000 won ($115.46) per share at the top end of its indicative price range, the company said in a regulatory filing Monday.

With the agency’s two-day public subscription period kicking off on Oct. 5 -- right after the Chuseok holiday -- individual investors appear to be transferring huge amounts into their accounts at securities firms. According to data from the Korea Financial Investment Association, deposits in Korean cash management accounts reached about 62.66 trillion won as of Friday, up nearly 1 trillion won on the previous week.

The figure is 3 trillion won higher than the amount of cash gathered in prior to Kakao Games’ IPO earlier this month and 7 trillion won higher than the influx seen when SK Biopharmaceuticals was making its market debut.

Apparently further fueled by the BTS single “Dynamite,” which topped the Billboard’s Hot 100 immediately after its release in early September, the agency’s IPO has been grabbing international attention, rare for a local company.

Experts point out that BTS’ worldwide fandom not only highlighted the agency’s market debut but could also fuel stock price increases in the future. BTS has 360 million fans around the world, according to Park Jong-sun, an analyst at Eugene Investment & Securities.

“One is that the firm’s positive outlook based on steady growth amid its artist lineup expansion, based on their fandom. Another one is its well-managed fandom through three business structures -- content production, various businesses and own platform,” he said.

“Due to the ongoing COVID-19 pandemic, the firm earned little from performances, but its business performance in the first half of this year was quite solid thanks to (BTS’) online fan community platform Weverse. By using the platform to commercialize and provide content, the firm was able to record a strong performance.”

Not only is Big Hit moving to become an integrated content firm, but as both investors and the boy band fans’ desire to own its shares, it may attract greater deposits during the upcoming preorder session, according to investment banking sources.

With some saying that hope to buy Big Hit shares just because they are BTS fans, industry watchers forecast that fans will consider the stock a form of BTS merchandise.

“Fueled by BTS’ high popularity, people are more familiar with its label Big Hit than Kakao Games. As the boy band’s fans -- collectively known as ‘Army’ -- are also expected to inject funds during the general subscription, the competition is likely to intensify,” said a local IB official who wished to be anonymous.

Despite keen interest among retail investors in Big Hit shares, experts say buying them may not be as easy as it looks.

The way shares are distributed in Korea means that if preorder competition reaches 1,000-1, an individual investor has to park 67.5 million won in order to win a single 135,000 won share.

In early September, retail investors submitted some 58.55 trillion won in deposits during the two-day preorder session for Kakao Games stocks, nearly double the record of 30.99 trillion won set by SK Biopharmaceuticals in June.

Market experts, at the same time, suggested Big Hit’s target price would fall between 160,000 won and 380,000 won, forecasting that the shares would go for double the company’s offering price on the day of its market debut and further spike by the daily permissible limit of 30 percent on the second day trading.

But some warned that Big Hit’s share price might drop rapidly as institutional investors sell shares for profit shortly after the IPO.

The rate of six-month lockup pledges by institutional investors who preordered Big Hit’s shares was 43.9 percent, lower than the 81.2 percent figure for SK Biopharmaceutical or the 58.6 percent for Kakao Games.

Ahead of its market debut on the nation’s bourse Kospi market on Oct. 15, public subscriptions will be accepted Oct. 5-6 with NH Investment & Securities, Korea Investment & Securities and JP Morgan serving as the lead underwriters of the IPO. Mirae Asset Daewoo and Kiwoom Securities are also participating as members of the underwriter group.

By Jie Ye-eun (yeeun@heraldcorp.com)
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