Bourse operator to enhance pre-IPO review after HYBE CEO's windfall profit

By Yi Whan-woo

The Korea Exchange (KRX) is updating the review process for the largest shareholders of companies that plan to go public to prevent them from taking massive profits while inflicting losses on retail investors, industry officials said Thursday.

The KRX, Korea's sole bourse operator, is taking action years after the dispute concerning HYBE CEO Bang Si-hyuk making more than 400 billion won ($277.83 million) when his company debuted on the benchmark KOSPI in 2020.

The CEO raked profits under an undisclosed contract between him and multiple private equity funds (PEFs), such as STIC Investments, Estone Equity Partners and New Main Equity.

The deal set a specific period of time in which HYBE would go public for PEFs to cash in gains by selling the company stakes they acquired before the initial public offering (IPO).

It also said that Bang would receive 30 percent of the gains PEFs made if the IPO went as planned.

The chairman made more than 400 billion won following the company's IPO.

STIC Investments bagged 961.1 billion won in return after investing 103.9 billion won. Estone Equity Partners and New Main Equity also took “considerable benefits” after investing 125 billion won each, according to industry officials.

However, retail investors suffered losses as massive unloading of the PEFs' stakes in HYBE prompted the company’s shares to fall by nearly 50 percent from its peak price just five days after the IPO.

“The deal is not in breach of the financial regulatory law, and Bang has not been subject to any sanctions to date,” an industry official said. “Such confidential contract, however, can undermine investor sentiment when retail investors leave the domestic market due to lower returns compared to overseas markets.”

The KRX has asked IPO candidates to submit any business contract concerning its largest shareholder in a pre-IPO review.

A refusal to comply with the KRX’s demand can result in the denial of the IPO.

The KRX did not confirm whether pre-IPO review regulations had been tightened. However, the KRX said it was "bolstering efforts for greater transparency and ethical considerations in financial transactions under the Corporate Value-up Program.”

The bourse operator referred to the government’s signature program aimed at boosting undervalued Korean stocks.

Meanwhile, the Financial Supervisory Service (FSS) remained undecided whether similar cases from HYBE’s IPO will be subject to punishment in the future.

“There is no explicit regulation stating that this must be written in the securities registration statement, so it falls into a gray area,” the FSS said.