Top news
South Korean IPOs under scrutiny
Equities Listing candidates face delays after regulatory probe of Samsung Biologics
BY CANDY CHAN
South Korean companies are
facing a longer wait to go public
AFTERûTHEûCOUNTRYSûlNANCIALû
regulator stepped up its
auditing of listing candidates.
The Financial Supervisory
Service has tightened
surveillance after it said in May
that biotech drug manufacturer
SAMSUNG BIOLOGICS had
committed accounting fraud
ahead of its 2016 IPO. The
regulator said it planned to
MAKEûAûlNALûRULINGûONûTHEûCASEû
on July 18.
h!LMOSTûALLûCOMPANIESûlLINGû
for listing this year have to take
the audit checks from the FSS,”
said an ECM banker, compared
with only around 30%–50% of
the candidates in the past.
In the past the regulator only
screened companies if it had
received allegations of fraud
from whistleblowers.
Bankers said they were now
more prudent when preparing
deals, and were spending more
time with independent auditors
on listing documents.
LOTTE DATA COMMUNICATION, an
information technology unit of
South Korean conglomerate
Lotte Group, and low-cost
carrier T’WAY AIR are among the
IPO candidates that have faced
additional scrutiny, according to
another banker. Both
companies won approval from
the country’s stock exchange
last month.
Lotte Data expects to raise
7BNn7BNû53Mn
$129m) while T’way Air is
SEEKINGûAROUNDû7BNn
W267bn, according to a person
who has knowledge of the
transactions.
Five more companies are
subject to additional checks, a
person with knowledge of the
matter said. They are golf wear
and apparel manufacturer CREAS
F&C, secondary battery
component manufacturer ECOPRO
BM, semiconductor component
manufacturer WOOJIN I&S, mobile
game publisher KAKAO GAMES and
robot manufacturer ROBOTIS. A
dozen smaller deals are also
currently under FSS surveillance,
the person said.
Sechoeon Oh, lead examiner
of audit review at FSS. said the
agency “does not carry out an
audit review on all IPO
applicants but conducts them
based on a sample basis among
companies that submit their
business reports”. The Korean
)NSTITUTEûOFû#ERTIlEDû0UBLICû
Accountants supervises audits
of companies that do not submit
business reports.
Oh declined to comment on
the audit selection process, but
said the Securities & Futures
Commission will take action on
audit offences that appear as a
result of FSS audits.
Creas F&C, Ecopro BM, KaKao
Games, Lotte Data
Communications, Robotis,
T’way Air and Woojin I&S did
not respond to requests for
comment.
“Market players including
AUDITûlRMS ûUNDERWRITERSûANDûcompanies are worrying that
the new audit exercise would
consume more time in the
already time-sensitive IPO
process,” said Huh Young-man, a
capital markets attorney at Kim
& Chang, adding that any delays
would affect market sentiment.
While the listing process
normally takes six months from
lLINGûTOûGOûPUBLIC ûTHEû&33ûAUDITû
COULDûDELAYûTHEûlNALûAPPROVALûBYû
around a month.
However, Huh expects the
impact to be short-lived since
the market will get more clarity
on the legal and audit
requirements once the FSS has
MADEûITSûlNALûCONCLUSIONûONûTHEû
Samsung Biologics case.
The person familiar with the
surveillance also said that Korea
Exchange remained market-
friendly, downplaying concerns
over the additional scrutiny.CHAEBOL REFORM
The regulatory probe centred on
questions about Samsung
"IOLOGICSûPROlTSûINû ûAûYEARû
before it was listed on the KRX.
After years of losses, the
COMPANYûPOSTEDûAûNETûPROlTûOFû
W1.9trn in 2015 after changing
the method it used to calculate
the value of Samsung Bioepis, a
joint venture with US
pharmaceuticals company
Biogen.
Samsung Biologics has said
that the change was in line with
international accounting
standards, but the probe has
knocked its share price down
18% over the last three months.4HEûBIOTECHûAFlLIATEûOFû
technology giant Samsung
Electronics, which develops and
manufactures antibody drugs for
the treatment of cancer,
autoimmune disease and
diabetes, has a market
capitalisation of about W28bn.
3AMSUNGû#4ûOWNSûAûûSTAKEû
in Samsung Biologics and
Samsung Electronics owns 31.5%.
Samsung Biologics is not the
ONLYûAFlLIATEûOFû3AMSUNGû
Electronics that has been
criticised by the FSS. The stock-
trading arm of the
conglomerate – Samsung
Securities – got itself into hot
water after it erroneously issued
2.8bn shares to its employees in
April.
The new head of the FSS, Kim
+I
SIK ûWHOûJOINEDûTHEûlNANCIALû
watchdog on April 2, has
repeatedly pledged to restore
public trust in the agency and
said that no favours would be
given to the chaebols, South
Korea’s powerful family-
controlled conglomerates.
Public anger over the
CHAEBOLSûPOLITICALûINmUENCEû
contributed to the ousting of
former president Park Geun-hye
following a series of corruption
allegations involving her
CONlDANTEû#HOIû3OON
SILûANDû
Samsung’s Lee Jae-yong.
New president Moon Jae-in,
WHOûTOOKûOFlCEûINû-AYû û
called his rise to power “the
culmination of the candlelight
revolution”, a reference to
protests in 2016 against his
predecessor. IFR MARKETS
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