South Korea’s IPO disrupts cloud equity markets

South Korea’s equity IPO activity has slowed this year as efforts to boost corporate valuations run into trouble over management changes and the high number of Chaebols, or family-run conglomerates.

South Korea saw 15 new listings in the year to June 3, with earnings of about $700 million, according to LSEG data. By comparison, new listings average 80 per year between 2020 and 2025, about $8 billion, the data says. Malaysia’s new listing also continues to be nearly double that of South Korea.

In contrast, Kospi is the most active index in the world, more than doubled the amount in the year to Monday.

Chaebols, once the backbone of South Korea’s industrial development, are now “more of a hindrance than an aid to creating new, independent champions,” according to Polka Mishra, a partner at Javelin Wealth Management in Singapore. South Korea’s 50% inheritance tax on assets over 3 billion won ($2 million) gives conglomerates an incentive to keep prices and free float low, he said.

What it’s all about: By 2024, South Korea is launching a “capitalization plan” to end the so-called “Korean discount,” where stocks trade at lower levels than overseas peers. The country has made three amendments to the Commercial Law to improve the protection of minority shareholders and corporate governance.

The five largest conglomerates – Samsung, SK, Hyundai Motor, LG, and HD Hyundai – accounted for about 70% of South Korea’s stock market as of Monday, according to Korea Exchange data.

Listings of parent companies, which refers to a unit pursuing its own listing, “will be denied as a general rule,” Korea Exchange CEO Jeong Eun-bo told CNBC on June 11. They could be seen as reducing the value of the parent company at the expense of minority shareholders while allowing controlling families to retain control of the newly listed subsidiary.

Measured by the value of shares held among listed companies, these made up about 11% of South Korea’s total market as of last year, according to the Financial Services Commission, compared with about 4% in Japan and 3% in Taiwan.

The South Korean market operator plans to direct capital to new companies by offloading about 300 companies next year, said Korea Exchange’s Jeong.

The Korea Exchange encourages new listings while quickly removing unfunded companies from the market, Jeong said. Ultimately, “so that we can cut down on bad business practices and increase access to new businesses that we want to list.”

While the recession has boosted the value of parent companies, the recession has slowed the rate of fundraising and corporate capital outflows, said Lee Hyo-seob, a senior researcher at the Korea Capital Market Institute think tank in Seoul.

The decline in IPOs suggests that the market is “evolving into a selective, quality-driven market, with more capital concentrated in a smaller set of sectors and issuers,” said Jungik Park, South Korean IPO leader at EY.

South Korea already has a “high number” of listed companies, about 2,700, Park said. That’s almost half the US value, even though South Korea’s equity market is only a fraction of that of the US.

The limited IPO activity in South Korea is a double-edged sword for the broader capital market, said Lee Hyo-seob, a senior researcher at the Korea Capital Market Institute think tank in Seoul.

While fewer listings of parent companies have boosted the value of parent companies, the economic downturn has reduced the level of fundraising and corporate capital outflows, Lee said.

Still, Korea Exchange’s Jeong said the drop in IPOs reflects a transitional phase in the country’s efforts to boost corporate valuations.

“Once the government has issued clear guidelines regarding the listing of parent companies, I expect the companies to actively move forward with their listing plans,” he said.

Going forward, analysts expect AI infrastructure companies to make up the bulk of South Korea’s IPO pipeline, reflecting the country’s background in the chip sector led by Samsung Electronics and SK Hynix.

“Semiconductor and AI data centers require capital expenditure and long-term investment, which means there are limits to what private capital can do,” said Kang Jin-hyuk, senior analyst at Shinhan Securities, in a report published on May 22.

“Finally, the role of public funding and industrial capital support is becoming more important in the growth of Korea’s AI industry,” Kang said. He cited the government-led National Growth Fund’s investment of nearly $130 million each in AI chip startups Rebellions and FuriosaAI.