Another important consideration for the Kakao Pay listing is a fairly tight immediate free float.
Kakao Pay’s current shareholder composition is simple: Kakao and Alipay Singapore Holding, owned by China’s Ant Group. They currently hold 55% and 45% stakes, respectively, on a pre-IPO shareholding basis.
|Alipay Singapore Holding Pte. Ltd.||51,015,205||45.00%|
Kakao Pay has stated in its IPO prospectus that nominally up to 38.91% on a post-IPO shareholding basis will be an immediate float.
But the problem is the 39.12% stake held by Alipay Singapore Holdings.
Alipay said 8.95% of its stake in Kakao Pay would be locked up for 6 months, and 1.70% will be locked up for 1 year. And the remaining 28.47% are not locked up.
Alipay Singapore Holding Pte. Ltd.
|ESOP (post-IPO shareholders)||2.61%||1 year|
|IPO shareholders (institutional & retail)||10.44%||–|
Alipay’s investment history on Kakao Pay
Kakao Pay, established in April 2017 by separating the fintech business from Kakao, welcomed Alipay, which participated in a capital increase of ₩224.2B in June of the same year, as its second-largest shareholder. Alipay also invested ₩113.7B in 2020. This year too, Alipay participated in a rights increase (₩20.2B) following the exercise of a call option in April, increasing its stake to 45%.
Based on the prior bonus share offering, Alipay participated in the capital increase in 2017 and 2020 at ₩32,202 and ₩48,726, respectively. In addition, considering the recent rights issue issuance price is ₩9,101, the average purchase price per share of all current stocks is lowered to ₩7,020.
|Alipay Singapore Holding investment history||Total investment value||Stake %||Purchase price per share|
|– Average purchase price per share||–||–||₩7,020|
|Gain at the upper end of the indicative price band||–||–||1267.46%|
Alipay has invested ₩358.1B in Kakao Pay so far, and the value of its stake jumps to ₩4,897.5B based on the upper end of the indicative price band (₩96,000). This results in a return of more than 12 times the investment amount.
Alipay Exit Possibilities
As we all know, the level of an immediate float is essential for an IPO that is about the size of the Kakao Pay IPO. This is because it can estimate the fast entry of major domestic and foreign indices and predict overhang issues that significantly impact the short-term stock price.
So, how likely is Alipay’s early exit?
Alipay can sell 28.47% of its total shares immediately after listing. Even at the lower end of the indicative price band, the company is already able to reap 8x profit.
Alipay’s early exit may cause overhang risk in the short term, but it can also act as a positive for the company to be included in MSCI and FTSE as soon as possible. However, the possibility of Alipay’s early profit-taking is low at this point. If they had planned to sell their shares early, they would have done it through the secondary offering of this IPO.
In fact, in terms of its global expansion strategy, Alipay has enough justification for maintaining its stake in Kakao Pay for the time being. In addition to Kakao Pay, Alipay continues to invest in the Asian electronic payment market. Ant Group Chief Technology Officer (CTO) Chun-li called this the ‘Belt and Road Initiative for Payment’ and said, “Ant Group plans to build a simple payment market without borders.”
In a situation where Ant Group is trying to become an unrivaled payment service provider at the global level, there is no reason to terminate its relationship with Kakao Pay, a strategic partner in the Korean market, at this point.
Similarly, the prevailing opinion on local streets is that Kakao Pay wants to continue its current relationship with Alipay. This is because Alipay is essential for Kakao Pay’s overseas expansion.
In fact, Kakao Pay joined hands with Alipay to launch overseas payment services in Japan and Macau. Using this system, Korean users can pay electronically without exchanging money even when they travel abroad. In addition, Kakao Pay is expanding its business scope through cooperation with Alipay in online malls such as Ali Express and iHerb.