이 기사는 2019년 12월 13일 08:00 thebell 에 표출된 기사입니다.

With the domestic initial public offering (IPO) market continuing to slow and pressure on equity underwriting fees growing, South Korean underwriters are finding ways to increase their revenue by taking more risk in the equity market.

In the absence of large-size deals, competition among domestic brokerage firms to underwrite share issues is getting fierce, resulting in more pressure on IPO fees. In the domestic IPO market, underwriters usually earn fees only around 150 basis points of the money raised, while the fee percentage rises to 400 to 500 basis points for biotech IPOs due to a more complex process.

To survive in such a challenging environment, underwriters are focusing their attention on equity and warrant investments as seen in the last couple of years. This requires more risk-taking, but at the same time, gives them an opportunity to make a big profit if share price of issuing firms moves upward following their listings.

In 2019, many domestic brokerage firms have more willingly taken an equity warrant in return for their underwriting activities and also made an aggressive investment in a stake in companies awaiting their stock market debut. This contrasts with previous strategies focused only on underwriting share issues.

The listing of ecommerce platform Cafe24 Corp in 2018 is one of the examples of such a change taking place in the domestic IPO market. Thanks to Cafe24’s share rally following its listing, Mirae Asset Daewoo and Yuanta Securities Korea, which were joint bookrunners for the placing, reportedly recorded unrealized gains of more than 10 billion won ($8.4 million) after the exercise of a warrant granted by the issuer at the time of listing. The same year, DB Financial Investment, which led a share issue by biotech firm Cellivery Therapeutics, also posted large gains from an equity warrant granted by the issuer.

In the past, issuing firms often grant bookrunners an equity warrant when a put-back option – which gives investors the right to sell their shares back to an original seller at a specified price – is included in the underwriting agreement.

Recently, however, more underwriters are seeking to invest in an equity warrant when they lead a listing regardless of inclusion of a put-back option. According to local regulations, bookrunners leading an IPO can invest in an equity warrant of up to 10 percent of the number of newly issued shares.

Indeed, equity capital market (ECM) divisions of domestic brokerage firms are getting more pressure internally over an equity investment as new revenue sources.

Mirae Asset Daewoo, among other brokerage houses, has shown a keen interest in expanding revenue sources to an equity investment, recording the largest investment amount among its rivals this year. For example, Mirae Asset Daewoo invested four billion won in redeemable convertible preference shares (RCPS) issued by biotech company Kine Sciences, which aims to list in 2020. The brokerage house is also acting as bookrunner for the company's IPO.

(By reporter Yang Jung-woo)