The Strategist

South Korean Chaebols Are Preparing for IPOs

03/28/2016 - 16:31

In the wake of the South Korean stock market revive, some of the largest family-owned companies are preparing multibillion-dollar IPOs, which could make this year record in terms of raised funds .

Ian Sewell,
Ian Sewell,
Family conglomerates, or chaebols, such as Samsung, Doosan, and Lotte, will hold IPOs to rationalize structures, simplify process of succession and alleviate the debt burden. The amount of funds raised this year will be at least $ 10 billion, according to bankers. The sum would overshadow a maximum of 2010 at $ 8.5 billion. Following the almost 10-percent rally of key indices in Seoul since mid-February, the sale will test appetites of foreign investors to minority stakes in companies, dominated by some of the most prominent representatives of business circles of South Korea. However, scale of offerings and the relative domestic market stability compared to the fears about the prospects for China this year makes them a magnet at least for Korean investors. The largest IPO expected this year will potentially include listing of Hotel Lotte Co (forecasted to bring $ 5 billion). Above that, analytics mention pharmaceutical companies Samsung Biologics and Doosan Bobcat Inc. (manufacturer of construction equipment), which are estimated at $ 2 and $ 1 billion respectively.

Last year, Lotte Group's empire, preparing for the IPO now, experienced a bitter struggle for power between children of the company's founder Shin Kyuk-Ho.

Samsung Group, in turn, also plunged into preparations for the change of power, trying to strengthen the position of Lee Jae-yong, vice-president of technology giant Samsung Electronics. Most likely, he will be successor to the ailing patriarch Lee Kun-hee. Regardless of Lotte and Samsung's problems , bankers expect a high interest in the transactions in 2016.

"South Korea has been very stable, in spite of all the stress and anxiety in the rest of Asia," - said a senior banker who worked on a number of deals in Seoul on condition of anonymity.

Chaebol in South Korea is a form of financial-industrial groups. This is is a group of formally independent companies owned by certain families under single administrative and financial control. Chaebol emerged in South Korea at the end of the Korean War. There are about 30 chaebols, they account for approximately 50% of total industrial production in South Korea. Previously, chaebols significantly contributed to the rapid development of South Korea after a long stagnation.