South Korea’s Cabinet approved detailed rules on Nov. 3 for an IPO program that lets institutions receive shares under staggered holding commitments to help address post-listing selling pressure and bolster confidence in pricing.
The Financial Services Commission (FSC) says the framework responds to sharp share-price drops after listings, which it links to heavy selling. Participating institutions receive part of an offering’s shares in return for keeping set portions of that allocation locked up.
Half of each institution’s allocation must remain locked for six months, 30% for eight months and 20% for 10 months. The FSC says the different release dates are intended to distribute potential selling over time.
On KOSPI offerings, cornerstone investors together may receive up to 20% of the eligible institutional share pool, while any one participant is limited to 10%. For KOSDAQ offerings, the caps are 30% overall and 20% for an individual institution. Shares allocated to general investors, employee stock ownership associations and policy funds are excluded from the pool used to calculate the limits.
The FSC set higher KOSDAQ caps because smaller offerings and policy-fund allocations could otherwise weaken institutions’ incentive to participate. To qualify, an institution must have equity capital or entrusted assets worth at least 20 times the value of its planned IPO subscription. The FSC says the threshold is intended to ensure participants can absorb price fluctuations during the lockup period, leaving them to bear that risk.
Underwriters may gauge demand from qualified institutions before an IPO’s price band is established in the securities registration statement. They must first prepare a due diligence report and sign confidentiality agreements with investors who receive nonpublic information. Institutions with relevant business interests, including major shareholders and affiliates, cannot enter cornerstone agreements; the rules also prohibit exchanging direct or indirect benefits under them.
EconoTimes has previously covered Hong Kong IPO prospectuses disclosing ties between issuers and cornerstone buyers, relationships that regulators want intermediaries to examine when assessing whether demand is genuine.
The rules are scheduled to take effect Nov. 13 alongside revisions to the Financial Investment Services and Capital Markets Act.
