South Korea’s equity IPO activity has significantly declined this year, with new listings and proceeds falling behind smaller regional peers. This downturn is attributed to government efforts to combat the “Korea discount” and reforms addressing the dominance of family-run conglomerates (Chaebols) and parent-subsidiary listings. Despite the slump, the Korea Exchange anticipates a rebound after clearer guidelines are issued, with future IPO prospects largely tied to the burgeoning AI and semiconductor sectors.
South Korea's equity Initial Public Offering (IPO) market has experienced a significant downturn this year, as the nation grapples with governance reforms aimed at boosting corporate valuations and addressing the pervasive influence of its family-run conglomerates, known as Chaebols.
Data from LSEG reveals a stark decline, with only 15 new listings recorded up to June 3, generating approximately $700 million. This contrasts sharply with an average of 80 listings and about $8 billion in proceeds annually between 2020 and 2025. Intriguingly, smaller regional players like Malaysia have nearly doubled South Korea's new listings and proceeds during this period. Despite the IPO slump, the Kospi index stands out as the world's top-performing major index, having more than doubled in value in the past year.
Experts point to the Chaebols, once pillars of South Korea's industrial growth, as now potentially hindering the emergence of new, independently listed companies. Polka Mishra, a partner at Javelin Wealth Management, highlights that South Korea's hefty 50% inheritance tax on amounts exceeding 3 billion won ($2 million) incentivizes these conglomerates to maintain lower valuations and limited free float, thereby retaining family control.
The "Corporate Value-Up Initiative," launched in 2024, seeks to eliminate the "Korea discount"—a phenomenon where South Korean shares trade below their international counterparts. This initiative includes multiple amendments to the Commercial Act, designed to strengthen minority shareholder protection and corporate governance. As of Monday, the five largest Chaebols—Samsung, SK, Hyundai Motor, LG, and HD Hyundai—commanded roughly 70% of South Korea's equity market capitalization, according to Korea Exchange data.
A significant reform involves restricting parent-subsidiary listings, a practice where a subsidiary lists independently. Korea Exchange CEO Jeong Eun-bo stated on June 11 that such listings would "be prohibited as a general principle." This measure aims to prevent the dilution of parent company value and the retention of control by founding families in newly listed subsidiaries. Last year, cross-held shares between listed parents and subsidiaries constituted about 11% of South Korea's total market cap, notably higher than Japan's 4% and Taiwan's 3%.
To funnel capital towards new ventures, Jeong Eun-bo announced the Korea Exchange's plan to delist approximately 300 "zombie companies" by next year. This aggressive strategy seeks to "cut off unfair trading practices and expand access for new ventures seeking to list" by encouraging fresh listings while swiftly removing insolvent firms.
While these reforms have contributed to increased valuations for parent companies, the slowdown in IPOs has created a challenging fundraising and exit environment for venture capital funds, notes Lee Hyo-seob, a senior research fellow at the Korea Capital Market Institute. Jungik Park, EY's IPO leader for South Korea, suggests that the market is evolving into a more "selective, quality-driven market," with capital concentrating in fewer sectors and issuers. With around 2,700 listed companies—half the number in the U.S., despite a fraction of its market cap—South Korea already possesses a substantial number of publicly traded firms.
Lee of the Korea Capital Market Institute views the limited IPO activity as a "double-edged sword" for the broader capital market. However, Jeong of the Korea Exchange assures that the decline reflects a transitional phase in the country's valuation-boosting efforts. He anticipates a more active listing process once the government provides clearer guidelines on parent-subsidiary listings.
AI IPO Prospects on the Horizon
Looking ahead, analysts project that AI infrastructure companies will dominate South Korea's IPO pipeline, leveraging the nation's robust position in the semiconductor industry, spearheaded by giants like Samsung Electronics and SK Hynix.
Kang Jin-hyuk, a senior analyst at Shinhan Securities, emphasized in a May 22 report that "Semiconductor and AI data centers require enormous capital expenditure and long-term capital deployment, meaning there are limits to what private capital alone can do." He stressed the crucial role of public funding and industrial financial support for the growth of Korea's AI sector, citing examples such as the state-led National Growth Fund's $130 million investments in AI chip startups Rebellions and FuriosaAI.
- Contributions from CNBC's Ying Shan Lee.
