Key facts
- Cornerstone investors may receive up to 20 percent of the institutional allocation on the Kospi and 30 percent on the Kosdaq.
- Per-investor caps are 10 percent of the institutional allocation on the Kospi and 20 percent on the Kosdaq.
- Allocated shares carry staggered lock-ups: 50 percent for six months, 30 percent for eight months and 20 percent for 10 months.
- Pre-demand forecasting requires entrusted assets of at least 30 billion won ($22.4 million), the FSC said.
- A cornerstone investor must hold equity capital or entrusted assets of at least 20 times its advance allocation.
South Korea will introduce a cornerstone investor regime for initial public offerings on November 13, the Financial Services Commission said, under an amendment to the Capital Markets Act enforcement decree that the Cabinet approved on Tuesday. The FSC said the change also creates a pre-demand forecasting system, which gauges institutional appetite for IPO shares before a securities registration statement is filed.
The FSC said the regime is meant to curb the sharp share-price drops that often follow listings when institutional investors sell large blocks of stock, and to make offering-price calculations more rational. Institutional investors receiving shares in advance must hold them for six to 10 months.
To take part in pre-demand forecasting, general private collective investment managers and discretionary investment managers must hold entrusted assets of at least 30 billion won ($22.4 million), matching the book-building threshold. The amendment drops a provision that would have lowered the threshold to 5 billion won for firms registered more than two years. Participants must also meet Korea Financial Investment Association requirements, including demonstrated capability in corporate valuation and internal management of non-public information.
After a due-diligence report, the lead underwriter may share information of the kind disclosed in the registration statement with institutional investors and gauge their desired prices and volumes, under a confidentiality agreement. A cornerstone investor must also hold equity capital or entrusted assets equal to at least 20 times the value of the shares allocated in advance. "Because this is a relative standard, not just large institutional investors but mid- and small-sized ones can also have the opportunity to participate," the FSC said.
Lock-ups are staggered: 50 percent of an investor's allocated shares carry a six-month lock-up, 30 percent eight months and 20 percent 10 months. Cornerstone investors may receive up to 20 percent of the total institutional allocation on the Kospi, with a 10 percent cap per investor, and up to 30 percent on the Kosdaq, with a 20 percent cap per investor.
The FSC also set safeguards against conflicts of interest, including measures aimed at preventing lead underwriters from pre-allocating large blocks to affiliates in oversubscribed IPOs. The report describing the safeguards was cut off mid-sentence.