Korea’s Financial Services Commission unveiled a roadmap for the listing last week, which envisions a sweeping restructuring of the bourse into a holding company with spin-offs comprising the Kospi, Kosdaq and derivatives markets.
Kospi is Korea’s main board, while the tech-heavy Kosdaq functions as a local version of Nasdaq. The KRX will also be pushed to make itself an attractive listing destination for companies at home and abroad.
The FSC said the free flow of capital and technological innovation was heating up competition among stock exchanges globally and many were actively seeking M&A and strategic alliances to be more competitive.
Korea is not alone in this pursuit. India too has been facing growing pressure from investors to float its two main stock exchanges – the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
The Indian Finance Ministry is said to be warming to this idea, according to local media, with the NSE’s shareholders having met the management of the stock exchange recently to give the plan the green light.
But bankers in India believe that floats of the BSE and NSE are far from being realised, as they face resistance from the Securities and Exchange Board of India (Sebi), which has proved stubborn so far.
“Ultimately it [an IPO of BSE or NSE] is in the hands of Sebi, and I think it’s a long, long way away,” said an ECM banker with a local bank. “The BSE has been trying to list for ages but the regulator still does not seem ready for it.”
Change is coming
Shades of this can be seen in Korea as well. Local bankers say the IPO of the KRX, if and when it comes to fruition, will be a big event for the market, but will by no means be a speedy process.
“The aim is to move KRX from a heavily bureaucratic, government-controlled institution to one that can play with the international stock exchanges at their level,” said a Korea-based ECM banker.
But he was sceptical about its implementation, pointing out that the Kospi and Kosdaq exchanges of the KRX were currently not making money, and the management of the bourse remains conservative and bureaucratic.
“The IPO will require various approvals from the government and the powerful labour union, as well as the brokerage houses, which own stakes in the KRX,” the banker said. “Plus the restructuring into a holding company will be lengthy.”
Still, the benefits are there for all to see. “Many stock exchanges are listed and it will allow the KRX to obtain funding from the capital market and upgrade its systems,” the banker said. “That’s why the government is insisting on moving ahead with the IPO.”
Another banker in Korea said the IPO could be worth W141,000 ($126) a share, potentially valuing the stock exchange at W$3tr. He welcomed the move, which could lead to a big payday for bankers who land the IPO mandate.
Some 88% of the KRX is held by 40 local brokerages and futures firms, but each of their holdings cannot exceed 5%. Although they own stakes, the brokerages have no management control over the bourse.
New products
Under its reform plans, the FSC is to seek a transfer of the KRX’s market oversight function to a separate non-profit entity that will act independently from the stock exchange to avoid conflicts of interest.
The Kosdaq will form a key part of this overhaul, according to the FSC, with the majority of funds to be raised from the IPO already earmarked for the development of the KRX’s second board.
The FSC said it wants to boost IPOs of large blue-chip firms on the Kosdaq and introduce new products and services. Listing requirements will also be revised to accommodate companies backed by venture capital investments.
New products like Kosdaq-linked ETFs and derivatives are on the cards, and Kosdaq will also support the issuance of equity-linked products like convertible bonds by Kosdaq-listed companies.
Not only that, but Kosdaq will look into forging strategic alliances with fast-growing Asian exchanges, and the regulator intends to encourage competition between the Kosdaq and Kospi for new listings.