In the first half of this year, LG CNS, which was considered a big fish in the initial public offering (IPO) market, saw its stock price fall below the offering price from the first day of listing. The valuation declined by about 34 billion won for individual investors who had participated in the subscription.
LG CNS shares ended the trading day on the KOSPI market at 55,800 won on the 5th. The stock price fell 9.85% (6,100 won) from the offering price (61,900 won). LG CNS started trading with an opening price of 60,500 won, but the stock price only moved below the offering price. At one point in early trading, it touched 61,900 won, but it couldn't break through because there were hundreds of thousands of shares available for sale.
The lowest price recorded that day was 54,900 won. The market capitalization, which approached 6 trillion won based on the offering price, shrank to 5.4062 trillion won.
Earlier, LG CNS set the offering price at the upper end of the desired range (53,700 to 61,900 won) as the demand forecast for institutional investors was successful. Subsequently, during the public offering subscription for general investors, it garnered over 21 trillion won in subscription deposits.
However, as the stock price showed a downward trend from the early trading hours that day, some investors appeared to have engaged in panic selling. Of the LG CNS shares allocated to institutional investors, 78.7% did not commit to a mandatory holding period, resulting in 29.22% (28,313,660 shares) of the total issued shares being available for circulation from the first day of listing.
Breaking down by investor type, institutional and foreign investors net sold LG CNS shares worth 156 billion won and 29 billion won, respectively. The selling scale from private equity and investment trusts was significant. Individuals alone initiated a purchase of 186 billion won.
Individual investors who participated in the LG CNS public offering were vocal about their grievances. This was due to the fact that LG CNS was a large-cap stock approaching a market capitalization of 6 trillion won based on the offering price and was the first listing on the KOSPI market this year, leading to high expectations. In the LG CNS stock discussion forum, comments such as "I was trying to make money for chicken, but it looks like I'm going to lose money for beef," "it was washed with retail investor money," "another inflated listing," and "I subscribed fully, but I've lost all the profits I made from six months of public offerings" were posted.
Individuals subscribed to a total of 5,557,414 shares of LG CNS, equivalent to 344 billion won based on the offering price. Simply calculating based on the closing price that day, the valuation dropped to 310.1 billion won. Among individuals, there was an investor who received a maximum of 741 shares of LG CNS, and if they held onto them, the valuation loss would exceed 4.52 million won.
As LG CNS recorded weakness from the first day, it has become difficult to be included early in the major stock index. This means it's hard to expect funds that track the stock index to flow in and boost the stock price.
To be included in the KOSPI 200 index, there are regular changes and special inclusions. Regular changes are based on the average market capitalization over the past six months on the expiration dates of futures options in June and December each year. Because of LG CNS's listing period, it will not be able to be included during the regular change in June and will have to aim for the year-end regular change.
Special inclusion is also not easy. The conditions for special inclusion in the KOSPI 200 index are broadly twofold. First, the average market capitalization over the first 15 trading days from the new listing must be within 1% of the total market capitalization. LG CNS's market capitalization needs to exceed 21 trillion won, so the stock price needs to rise more than four times from the closing price that day.
If the average market capitalization rank over 15 trading days falls within the top 50, it will be included on the nearest futures options expiration date. Considering that Korean Air's market capitalization, ranked 50th that day, was 8.7452 trillion won, the stock price must rise by more than 62% and maintain that level until the 25th.
The issue is that the Korea Exchange has recently tightened the special inclusion requirements for large-cap stocks in the KOSPI 200 index. According to Bae Cheol-kyo, a researcher at NH Investment & Securities, the floating market capitalization based on the number of shares available for trading must also exceed 50% of the market capitalization of the top 50 stocks. This means LG CNS's floating market capitalization must exceed 4.3726 trillion won, which is half of Korean Air's market capitalization.
Based on the LG CNS floating stock ratio (29.22%), the floating market capitalization is 1.5797 trillion won. The stock price must rise nearly three times higher than the closing price that day and maintain that for the remaining 14 trading days.
The inclusion of LG CNS in the Morgan Stanley Capital International (MSCI) Korea index is also expected to take time. To be included early in the MSCI index, the market capitalization must exceed 830 billion won and the floating market capitalization must exceed 420 billion won, but there is a large gap between LG CNS's market capitalization that day and these thresholds.
Moreover, MSCI regularly changes the constituent stocks of the index in February, May, August, and November. The evaluation process for the February regular change has been completed, and it will have to wait for the May regular change. During the May regular change, the floating market capitalization will be key. Generally, a floating market capitalization of more than 25 billion won is considered stable for inclusion. LG CNS's stock price must be about 60% higher than it is now after mid-April, when evaluations for the May regular change are conducted.