Coupang's US$3.6b IPO shows US is king for tech IPOs

[SEOUL] South Korean e-commerce giant Coupang is on track to be the largest listing by a Korean company in a decade. And, like most of the major tech offerings these days, it's happening in New York.

There are three big reasons that explain why the US is a better pick for the e-tailer backed by SoftBank Group's Masayoshi Son. Perhaps most significantly, New York offers a considerable valuation premium. It also has a deeper, more liquid market, and allows uneven voting rights that would benefit Coupang's founder, Harvard Business School drop-out Bom Kim.

The US has been the destination of choice for mega tech initial public offerings (IPOs), with 2020's biggest debuts Airbnb and DoorDash both listed in New York. Chinese e-commerce giants such as Alibaba Group Holding and also went public there. Coupang is seeking to raise up to US$3.6 billion in its IPO and could garner a value of more than US$50 billion. That would make it the largest float by a Korean company since Samsung Group took its insurance unit public at home in 2010.

Had the loss-making e-commerce firm listed in South Korea - which from this month will allow unprofitable companies to go public - Coupang could have fetched a maximum valuation of just US$10 billion, according to Suh Yong Gu, a marketing professor at Sookmyung University.

"The history of capitalism in South Korea is short, so Koreans don't ascribe high valuations to loss-making companies," said Prof Suh.

South Korea's stock market is less than 70 years old, and is dominated by chaebols, or family-controlled industrial groups. In fact, SK Bioscience Co, a unit of SK Group, one of the county's largest chaebols, will be the latest to have a stock market presence when it goes public this month. The maker of AstraZeneca's Covid-19 vaccine for South Korea, is seeking to raise US$1.3 billion ahead of its March 18 listing, according to Korean-language Seoul Economic Daily on Monday.

South Korean investors' appetite for their home-grown entrepreneur-led startups, however, will be tested in coming months with IPOs by Krafton, the creator of hit game PUBG, and the country's biggest mobile-only bank Kakao Bank. Unlike Coupang, those firms are profitable.

Coupang has lost money in the last three years, recording an accumulated deficit of US$4.12 billion as at December, according to its filing. Thanks to the surge in online shopping during the pandemic, however, it managed to nearly double its revenue to US$12 billion last year.

A US$51 billion valuation would put Coupang among the five most valuable companies in South Korea, of which Samsung Electronics is the biggest. Korea's other big startups with growing clout in e-commerce - the US$58 billion Internet conglomerate Naver, and the US$39 billion messaging app Kakao - are both listed in Seoul, but were both profitable when they went public. The two are backed by entrepreneurs and not linked to the chaebols like Samsung Group.

In fact, Coupang's listing in the US will allow it to exceed the combined market value of the six chaebol-owned retailers trying to expand their presence in e-commerce - E-Mart, Lotte Shopping Co, GS Retail Co, Shinsegae, BGF Retail Co, and Hyundai Department Store Co.

Liquidity is another allure of the US market, allowing companies to raise funds frequently through secondary share sales. South Korea's stock market, at a total value of US$2.12 trillion, is a fraction of the US$44.2 trillion of the US, according to Bloomberg data.

"It's easier for investors to exit" their stakes in the US, said Seo Sang-Young, an analyst at Kiwoom Securities in Seoul. "And the trading volume is much larger."

And finally, a US listing gives founders more power.

South Korea doesn't allow uneven voting rights, favoured by tech firms like Alphabet and Facebook, which see it as a way for founders to focus on the long term. But the US does, even if the ownership structure is itself not without controversy, as it lacks shareholder protections. Mr Kim, Coupang's 42-year-old founder, will end up with 76.7 per cent of the company's voting rights with just 10.2 per cent of its outstanding shares.

"We would have liked Coupang to list in Korea," said Kim Sung-gon, a spokesperson at Korea Stock Exchange. "But we respect the company's choice."

Still, missing out on the chance to buy into one of the country's hottest companies in the biggest Asian company IPO since Alibaba Group's US$25 billion New York listing in 2014 is rankling the retail investors who have come to dominate South Korea's stock market since the pandemic spread.

"There is certainly regret among retail investors that they cannot buy into the IPO," said Kim Dong Joo, the chief executive of Iruda Discretionary Investment, a Seoul-based investment firm catering to retail investors seeking to buy foreign stocks.

Coupang prides itself on its same-day or at least pre-dawn deliveries. It is also giving its warehouse staff and 15,000 full-time delivery workers a total of US$90 million in pre-IPO stock, a unique largess that comes at a time when the deaths of a string of couriers from overwork as online orders soared is causing a national uproar.

"We believe we are the first company in Korea to make our front-line employees stockholders," Mr Bom Kim said in a letter to shareholders in Coupang's IPO filing.