Next month, Big Hit Entertainment will begin its long-awaited initial public offering process.
There has been plenty of excitement among investors and fans, as the label is home to global sensation BTS and boasts a valuation higher than the combined value of S.M. Entertainment, JYP Entertainment and YG Entertainment, the country’s three major entertainment companies.
Going public is not an easy step for a company to take, and difficult for many who don’t follow the stock market closely to grasp. We compiled questions that you may have surrounding Big Hit’s IPO and answered them.
What is an IPO?
Short for initial public offering, IPO is the process of offering shares of a private company to the public. IPO is a big step for a corporation, as it can raise capital for further business expansion.
Currently, each of the big three entertainment labels – S.M. JYP and YG – are listed on the nation’s benchmark bourse KOSPI.
What’s the price of each share?
Big Hit plans to offer about 7.13 million new shares at a price between 105,000 won ($88) and 135,000 won per share, according to its regulatory filing.
The share’s final price will be decided on Sept. 28 by the underwriters – NH Investment & Securities, Korea Investment & Securities and JP Morgan (main underwriters) and Mirae Asset Daewoo (joint underwriter) – based on the market’s demand and presubscriptions from institutional investors from Sept. 24 to 25.
How much will Big Hit be valued after IPO?
The October IPO is expected to raise between 748.7 billion won and 962.6 billion won and value Big Hit at about 4 trillion won. Some analysts predict it can go up to 4.8 trillion won based on the offering price, which would amount to $4 billion.
What will the value of chairman Bang’s shares be?
Big Hit founder and chairman Bang Si-hyuk is the largest shareholder of the company with 12,377,337 shares or a 43.44 percent stake in the business. If the offering price sets at the highest 135,000 won per share, his shares will be worth 1.67 trillion won, which surpasses the combined value of stocks owned by seven wealthiest figures in K-pop, including JYP CEO Park Jin-young and S.M. CEO Lee Soo-man.
What about BTS? Do the members own any company’s shares?
Bang gave 478,695 of his shares to the septet in advance of the IPO, distributing them equally among the members. Each BTS member received 68,385 shares, worth 9.2 billion won based on the highest price range.
Some analysts predict the stock value could surge after the stock debut, citing the recent upbeat sentiment in the IPO market here.
Can fans also buy shares?
Yes, there are two ways that potential retail investors can acquire the label’s stocks.
First, you can put in preorder deposits for a public subscription on Oct. 5 and 6 via the underwriters’ accounts. Make sure to open an account with one of the underwriters — NH Investment & Securities, Korea Investment & Securities, Mirae Asset Daewoo or Kiwoom Securities. JP Morgan, while a lead underwriter, does not accept retail subscription.
The preorder deposit will be 50 percent of the subscription size. If you apply for 2,000 shares priced at 135,000 won per each, you would need to put in 135 million won.
Keep in mind that only 20 percent of the label’s total shares are open to retail investors, so the competition may be fierce. Shareholders will be allocated the number of shares divided by the competition rate. So, if there are 1,000 preorder requests for one share, you will acquire one share only if you applied for 1,000 shares. The rest will be refunded.
The second option is to buy shares during the local trading time after listing.
Can foreigners also buy the shares?
Yes, though how early you can purchase them depends on whether you reside in Korea.
Foreigners who live abroad cannot directly participate in retail subscription. They can purchase shares after the market debut through accounts with their local securities firm. It is advised to open an account beforehand and exchange their currencies to the Korean won, as Big Hit will be listed on the local market.
Foreigners living here should first open a personal securities firm account. They should visit a nearby brokerage office along with an alien registration card or record of entry to Korea, and a Korean bankbook. Then they can open an account under one of the underwriters and follow the ensuing procedure listed above.
Is there any age limit?
No, there is no age restriction.
What are the benefits of buying Big Hit’s stocks?
In addition to the satisfaction of supporting your favorite artists, Big Hit also is an attractive investment choice.
Big Hit’s sales in the first half of this year far exceeded the sales of other entertainment companies, four times higher than that of JYP which performed the best among the three major labels.
The speed of its growth is also steep. Big Hit recorded 301.4 billion won in sales and 79.9 billion won in profit in 2018, which soared to 587.2 billion won in sales and 98.7 billion won the following year. Despite having to cancel their concerts this year, the company posted an almost 50 percent growth both in sales and profits in the first half of this year, according to its earnings estimates.
Following the release of BTS’ new single “Dynamite,” the label is expected to reach a revenue of 245.7 billion won based on the band’s previous album, concert, and other IP-related sales, while related exports of consumer goods are expected to be around 371.7 billion won.
What are the potential risks of buying Big Hit shares?
Some are cautious because of the company’s heavy reliance on a single artist, BTS.
According to the regulatory filing, sales generated by the septet accounted for 97.4 percent of the company’s sales last year and 87.7 percent in the first half of this year. The fact that compulsory military service awaits the members of the group may augment some investors’ prudence.
To counter such risks, Big Hit has been diversifying its businesses. It acquired two other agencies, Pledis Entertainment and Source Music, while nurturing and expanding trainees to debut new acts.