Kakao Bank becomes South Korea’s largest lender by market value in successful debut

SEOUL/HONG KONG, Aug 6 (Reuters) – Digital lender Kakao Bank Corp (323410.KS) made a stunning debut on Friday, jumping 79% from its IPO price to become South Korea’s largest financial services company by market value.

It’s the first Asia-only online bank to go public, according to a person who worked on the deal – a step that has been met with frenzied demand, especially as Chinese listings have fallen out of favor with the result of regulatory repression.

Kakao Bank, which counts the country’s leading chat app operator as its largest shareholder, is expected to capitalize on the rare growth opportunities for a financial firm offered by an unusual South Korean regulatory framework.

Due to its large user base, it is able to recommend and collect fees on products offered by other financial companies on a much larger scale than many traditional lenders, and also has an advertising business .

“Shareholders are optimistic because this is a platform, not just a bank,” said Seo Young-soo, an analyst at Kiwoom Securities.

Its shares closed at 69,800 won on Friday, down from an IPO price of 39,000 won and a valuation of around $29 billion.

In contrast, KB Financial Group Inc. (105560.KS)South Korea’s largest traditional financial group, was worth $19 billion.

“The high demand was because local institutions weren’t getting as much as they wanted when building books and foreign companies had funds earmarked for fintech investments. On top of that, it seems some funds have been redirected here due to the cancellation of Ant Financial’s IPO and other major offerings from China amid the recent tech crackdown,” said analyst Kim Ji-young. at Kyobo Securities.

Kakao Bank became profitable in 2019 after less than two years of operation and has 13.35 million monthly active users, making it the largest financial app in the country.

“It is the only purely mobile digital bank in the world that has become a major bank with 28.6 trillion won ($25 billion) in assets in just four years,” Seo said.

Some market participants, however, said Kakao Bank’s early valuations were hard to justify given its earnings, noting that KB Financial is expected to post about 3 trillion won in net profit this year, more than ten times what Kakao Bank is likely to realize.

PLANNED EXPANSION

Kakao Bank raised some $2.2 billion in its IPO and plans to use the proceeds to grow its platform-related business, which still accounts for just 6% of its revenue.

Three-quarters of the 804.2 billion won of its operating profit last year was interest income.

It offers unsecured personal loans and now has 6% of this market. It also provides loans for the lump sums Koreans must provide upfront when renting a property and plans to expand into mortgages and small business loans.

Although Kakao Bank has to compete with the digital services of traditional banks, there is only one other pure online lender in South Korea, K Bank. K Bank, owned by BC Card and other national firms, posted an operating loss last year and has yet to announce plans to list.

The IPO was the nation’s fourth largest and most subscribed to date with institutional demand reaching $2.2 trillion, marking another high point in what is shaping up to be a bumper year for stock floats. South Koreans, although some valuations have been reduced in recent offers. . Read more

Kakao Corp. (035720.KS)the largest shareholder of Kakao Bank with a 27.3% stake, is also planning to take its payment subsidiary public.

But Kakao Pay, also backed by Chinese Ant Financial, was asked by financial authorities to resubmit its IPO registration statement. Prior to this request, he was looking to raise up to $1.4 billion with a market value of up to $10.5 billion.

($1 = 1,142.3400 won)

Reporting by Joyce Lee and Scott Murdoch; Additional reporting by Heekyong Yang and , Jihoon Lee; Editing by Edwina Gibbs

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