Eager to calm its red-hot stock market, South Korea is encouraging state firms to go public, but investors and big banks will have to wait until next year at least before crown jewels like Incheon International Airport Corp enter the IPO scene.
Almost a decade after selling firms such as phone monopoly KT Corp in the wake of the 1997-98 financial crisis, the government plans to list a fresh batch of assets to relieve a market devoid of new private listings and in the process profit from soaring stocks.
Seoul has already chosen three small firms to list, but these are just a tip of the iceberg. Korea District Heating Corp, Industrial Bank of Korea Capital and Korea Plant Service and Engineering are estimated to have a combined market value of just 920 billion won ($996.9 million) - just a fraction of the more than 8 trillion won retail investors put into stock investment products in June alone.
Out of about 300 state-run institutions, the government has identified 15 promising firms to float, including Korea Expressway Corp and Incheon International Airport. Bankers value them at nearly $50 billion combined, based on multiples of listed local state companies.
These big listings are likely to attract strong competition from both local banks such as Samsung Securities, and foreign rivals like Goldman Sachs and Merrill Lynch, despite the slim fees on offer.
South Korean state deals often pay as little as 0.5 percent compared with 3-3.5 percent for a Hong Kong IPO and a whopping 7 percent for a US listing, but working on big name deals boosts a bank's position in league tables and curries favour with government officials for other large listings to come.
But the bigger firms need more time to come to the market, analysts say, as their projected market caps, based on standard price to earnings (PE) multiples, are a far cry from their huge net asset values - the result of a history of government aid.
That means big discounts are unavoidable. "The government has ploughed tremendous sums into these firms, but profits haven't been catching up. Going ahead with IPOs now means having to sell the assets cheaply," said Lee Ju-hyun, head of the IPO team at Hanwha Securities.
For instance, Korea Expressway made a net profit of less than 60 billion won last year, potentially giving it a 1.2 trillion won ($1.3 billion) market value based on the top end of the 10-20 times PE range on state firms. However, that is just 5 percent of its 20 trillion won net asset value, or book value.
The IPO timetable is also full of hurdles including the December presidential election, companies' opposition to what they see would lead to full privatisations and worries over potential hikes in public charges. Seoul plans to retain majority stakes in the companies, a similar model used by Singapore when listing state-run firms such as Singapore Airlines.