Daily BriefsIPOs and Placements

Equity Capital Markets: PointsBet Holdings Pty Ltd, Cloud Village, Krafton Inc, Devyani International, KakaoBank and more

In today’s briefing:

  • PointsBet Institutional Placement and Entitlement Offer – Worth a Bet
  • Cloud Village (NetEase Music) Pre-IPO – Tencent Music Peer Comp, Regulatory Impact
  • Krafton Bookbuilding: Subscription/Lockup Data & Resulting Implications
  • Trading Strategy of Krafton IPO Post Bookbuilding Results
  • Devyani Pre-IPO – Thoughts on Valuation
  • Kakao Bank: Full Allocation Results, Index Floats, & Fast Entry Possibilities

PointsBet Institutional Placement and Entitlement Offer – Worth a Bet

By Zhen Zhou, Toh

PointsBet Holdings Pty Ltd (PBH AU) is looking to raise A$400m (US$294m) from its institutional placement and entitlement offer. At the same time, Sam Swanell, Nick Fahey, and Andrew Fahey will be selling down a portion of their shares worth about A$29m.

In this note, we will look at the deal structure, discuss its Q4 results, and share our thoughts on the deal.


Cloud Village (NetEase Music) Pre-IPO – Tencent Music Peer Comp, Regulatory Impact

By Sumeet Singh

Cloud Village Inc. (CVI), also known as NetEase Music, plans to raise around US$1bn in its Hong Kong IPO. The company has also obtained investments from Baidu and Alibaba, along with other investors.

As of Dec 20, it had 181m online music MAUs, 16m online music services monthly paying users, 327,000 social entertainment services monthly paying users. It had over 60m music tracks, of which more than 1m were created by registered independent artists. Its daily active users on average spent 76mins daily listening to music. 

CVI’s revenue has grown 4.3x over FY18-20, to RMB4.9bn. There have been no signs of slowdown as its revenue increased by 102% in FY19 and was up another 111% in FY20. Both online music services and social entertainment services revenue have shown strong growth. Online music services revenue grew by 73% in 2019 and another 47.6% in 2020. Social entertainment services revenue was the largest driver of growth, as it grew by 344% in 2019 and was up another 320% in 2020. However, it remains a distant second player in the market and has yet to make a profit.

We covered various aspects of the deal in our previous note, Cloud Village (NetEase Music) Pre-IPO – Was in the slow stream, playing catch-up.

In this note, we compare CVI with its main peer Tencent Music Entertainment (TME) and comment on the recent regulatory announcement with respect to TME.


Krafton Bookbuilding: Subscription/Lockup Data & Resulting Implications

By Sanghyun Park

As expected, Krafton’s IPO price has been confirmed at ₩498,000, the upper end of the indicative price band. So, Krafton gets to raise a total of ₩4.3T through this public offering, and its market cap reaches ₩24.4T.

PricingLowHigh (final)
Price₩400,000₩498,000
Base deal size₩3,461.7B₩4,309.8B
– Institutional allotment₩1,903.9B₩2,370.4B
Implied market cap₩19,559.2B₩24,351.2B
– Discount30.93%14.01%
Source: DART

The competitive rate for institutional subscriptions came out to be 243.2 to 1, similar to what has already been leaked from the market. Compared to the recent mega IPOs that easily exceeded 1,000 to 1, it can be seen that this IPO’s institutional participation rate was low. However, considering that this IPO has a substantially larger offering size and a very aggressive price, it can be concluded that the interest of institutions was higher than expected.

By investor typeInstitution%Demand%
Local publicly raised funds23137.20%445,792,00038.52%
Local brokerages/investment advisories182.90%28,393,0002.45%
Local pensions, funds managing proprietary assets, banks, and insurance companies9415.14%242,965,00020.99%
Local others (mostly discretionary investment companies – local hedge funds)10416.75%234,982,00020.30%
Foreign (foreign IPO funds & hedge funds)14623.51%62,498,4975.40%
Foreign others (mostly local hot money)284.51%142,697,00012.33%
Total621100.00%1,157,327,497100.00%
Subscription rate243.15 to 1
Source: DART

Looking at the application results for each type of institution below, we can find a very interesting fact.

  1. First, a large number of foreign institutions with business relationships (i.e., major foreign investment institutions) participated in this subscription. The share of 23.5% by the number of participating institutions is significantly higher than the typical level for local IPOs. Of course, most of them applied based on actual demand, so their proportion of total subscription volume is only 5.4%. However, considering that all these quantities are actual demand, we can safely say that their participation level is quite high. This is a result consistent with what Mirase Asset (the bookrunner) has continuously leaked to the market about the active participation of many major overseas institutions.
  2. Another point to note is that the number of participating local institutions is remarkably low, consistent with the initial forecast that most small and medium-sized institutions skipped this IPO due to scheduling conflicts with LG Energy Solutions.
  3. Finally, institutions belonging to the category ‘Foreign others’ were quite aggressive in taking orders despite a small number of participating institutions. These are mainly local hot money managers, who are the most active in early profit realization trading. In other words, their aggressive move to secure Krafton IPO shares means that they are heavily betting on a short-term price increase due to the entry of local retailers immediately after Krafton’s listing.
  • The category ‘Foreign’ indicates foreign institutional investors with transaction records. They are foreign institutional investors who have a business relationship with the underwriter or of whom the underwriter acquirer is aware of the identity. So, these foreign institutions can be considered well-established overseas institutions actually based overseas.
  • In contrast, the category ‘Foreign others’ indicates foreign institutional investors without transaction records. Most of them are local hot money only whose legal office is registered overseas.

The “Unspecified” category usually indicates that they want the shares above the high end. With that in mind, 37.4% have gone for the upper end or above. The other 57.5% selected 75-100% of the upper end. So, most of the orders (95%) are priced at 75-100% of the upper end or higher. Unlike the initial concerns, we can say the institutional pricing is quite aggressive.

By priceInstitution%Demand%
Above high end599.50%279,666,00024.16%
75-100% of high end24639.61%665,029,82357.46%
50-75% of high end10.16%1,0000.00%
25-50% of high end00.00%00.00%
0-25% of high end71.13%11,370,0000.98%
Median00.00%00.00%
75-100% of median10.16%1,0000.00%
50-75% of median00.00%00.00%
25-50% of median30.48%77,0000.01%
0-25% of median10516.91%48,077,0004.15%
Low end or below274.35%37,0000.00%
Unspecified17227.70%153,068,67413.23%
Total621100.00%1,157,327,497100.00%
Source: DART

Trading Strategy of Krafton IPO Post Bookbuilding Results

By Douglas Kim

On 29 July, Krafton announced its IPO book building results. The IPO price has been determined at 498,000 won, which was at the high end of the IPO price range. The demand ratio among the institutional investors was 243 to 1. Krafton will be raising $4.3 billion in this IPO. There were 621 institutional investors that participated in the IPO survey of which 447 were domestic investors and 174 were overseas investors. 

Institutional Investors Demand Breakdown of Krafton IPO Bookbuilding Results
 
Domestic Investors    
 Asset mgmt companiesBrokeragesPension funds/insurance/banksOthers
No. of companies2311894104
Demand93.76.051.049.4
     
 Overseas Investors   
 (A)*(B)**  
No. of companies14628  
Demand13.130.0  
     
Total (No. of companies)621   
Total Demand243.1   
Note: (A)* refers to overseas investment mgmt companies that have records of trading with the brokers involved in this deal.
(B)** refers to overseas investment mgmt companies that do not have records of trading with the brokers involved in this deal.
Source: Company data   
  • We continue to have a NEGATIVE view of the Krafton IPO post book building results. Our base case valuation of Krafton remains implied market cap of 23.0 trillion won or implied price of 445,942 won per share, which represents 10% lower than the IPO price of 498,000 won. 

  • Gray market price of Krafton is 530,000 won, which is 6% higher than the IPO price of 498,000 won. 

  • Overall, there were some big institutional investors (both overseas and domestic) that helped to push Krafton’s IPO price to the high end of the lowered IPO price range. Despite this positive, the lock-up periods and the demand ratios were relatively weak as compared to other major IPOs in the past year. 

  • We do not expect any meaningful first day pop for the Krafton IPO. At best, we think there could be a 10-20% increase from the IPO price in the first few hours of trading on August 10th (IPO date). However, over a 6-12 months view, we believe that Krafton’s stock price will decline lower towards our base case intrinsic value of 455,942 won.


Devyani Pre-IPO – Thoughts on Valuation

By Sumeet Singh

Devyani International Limited (DIL), Yum Brand’s largest franchisor in India, aims to raise around US$200m via its Indian IPO. The IPO will be a mix of primary and secondary shares. 

DIL operates a chain of quick service restaurants (QSRs) in India. Its core business is to operate KFC, Pizza Hut and Costa Coffee in India. It operated 655 stores across 155 cities in India, as of Mar 2021. These include 264 KFC stores, 297 Pizza Hut stores and 44 Costa Coffee stores. It also operates stores in Nepal and Nigeria for KFC and Pizza Hut. In addition, it also runs its own brands Vaango, Food Street, Masala Twist, Ile Bar, Amreli, and Ckrussh Juice Bar in India. Yum owns over 4% stake in the company.

In this note we will talk about valuations.


Kakao Bank: Full Allocation Results, Index Floats, & Fast Entry Possibilities

By Sanghyun Park

Allocation

All the allocation results for the Kakao Bank IPO are now available at DART. Institutional investors took 55% of the total offering, and retail took 25.5%, receiving the forfeited shares from the ESOP subscriptions.

Almost all institutional allocations have gone to local publicly raised funds and pensions known for their long-term holding tendencies. Yes, as expected, those presumably long-term foreign funds also took a substantial portion, which Kakao Bank needs to boost the foreign ownership percentage, often interpreted as a symbolic indicator of popularity.

Allocation by type

Allocated, % of the offeringFinal, % of the offeringFinal, % of post-IPO SO
Institutional55.00%55.00%7.58%
1. Local publicly raised funds16.00%2.21%
2. Local Br/IA1.02%0.14%
3. Local pension, etc.9.83%1.36%
4. Local others0.61%0.08%
5. Foreign27.53%3.80%
6. Foreign, other0.00%0.00%
Retail25.00%25.50%3.51%
ESOP20.00%19.50%2.68%
Total100.00%100.00%13.78%
Source: DART

Below is the classification of institutional investors as defined in KRX statistics.

By investor type
1. Local publicly raised fundsLong-term
2. Local brokerages/investment advisoriesShort-term
3. Local pensions, funds managing proprietary assets, banks, and insurance companiesLong-term
4. Local others: discretionary investment companies, savings banks, real estate trust companies, capital companies, and leasing companies
Mainly, short-term
5. Foreign institutional investors with a transaction record: foreign IPO/hedge funds
Depends
6. Foreign institutional investors without transaction record: local hot money
Mostly, short-term
Source: DART

Lockups

Institutional allocations without lockup account for only 40%. Most of the shares allocated to local publicly raised funds and pensions are locked up for 3-6 months. Foreign funds also locked up about 25% of their allocated shares, which is much higher than usual.

The initial expectation was to take the lockup weight to a minimum considering the immediate float, but it turns out that Kakao Bank has aggressively locked up than originally expected.

Lockups by institution type1. Local PO2. Local Br/IA3. Local pension, etc.4. Local others5. Foreign6. Foreign, otherTotal
6 months13.02%0.25%14.84%0.29%8.42%0.00%36.81%
3 months9.63%0.62%1.86%0.29%1.67%0.00%14.07%
1 month4.13%0.23%0.59%0.17%3.61%0.00%8.72%
15 days0.17%0.04%0.01%0.00%0.00%0.00%0.22%
No lockup2.15%0.71%0.58%0.37%36.36%0.00%40.18%
Total29.10%1.85%17.88%1.12%50.06%0.00%100.00%
Source: DART

The amount released to the market immediately after the listing is 22.55% of the total number of outstanding shares. This includes pre-IPO minority shareholders (mostly VC and corporate), which account for 15.99%.

Post-IPO lockup releases, as a % of SOIPO shareholdersMajor shareholderESOPVC/corporate stakeholdersOther pre-IPO minority shareholders (mostly VC/corporate)Total
1 year0.00%0.00%2.68%0.00%0.00%2.68%
6 months2.79%27.26%0.00%39.76%0.00%69.81%
3 months1.07%0.00%0.00%3.20%0.00%4.27%
1 month0.66%0.00%0.00%0.00%0.00%0.66%
15 days0.02%0.00%0.00%0.00%0.00%0.02%
Lock-up4.54%27.26%2.68%42.96%0.00%77.44%
No lock-up6.56%0.00%0.00%0.00%15.99%22.55%
Source: DART

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