KaKaoBank's IPO was widely subscribed. Photo: Twitter

SEOUL – In a sign of the ongoing expansion of South Korea’s portfolio of new economy companies, a digital bank took flight in its IPO on Friday morning.

Shares of KakaoBank were off to a flying start on the Kospi – Korea Exchange’s main board – immediately opening at 53,700 won (US$46.96), up more than 37% from its IPO price of 39,000 won.

The price continued to surge, hitting 68,000 won before dropping to 63,900 won at the time of writing.

Even so, the overall market cap at the 63,900 won level per share grants KakaoBank a market capitalization of 29.8 trillion won ($26 billion), making it the most valuable financial company in South Korea.

Before KakaoBank’s debut, the South Korean financial landscape was demarcated by the top three banks, KB, Shinhan and Hana, with respective market caps of 21 trillion won, 19 trillion won and 13 won trillion. Before its IPO, KakaoBank was the country’s eighth-largest retail banking player.

KakaoBank is one of the finance arms of Kakao Corp, a platform company that grew out of KakaoTalk, a much-loved free messaging app that is virtually ubiquitous in South Korean smartphones.

KakaoBank launched in 2016 as an online-only lender. Last year, it registered 804.2 billion won in operating income and 113.6 billion won in net profit and has won kudos for its 24-7 services and convenient interfaces. According to local media, KakaoBank boasts 16 million users in a population of 51 million.

Moody’s Investors Service rates KakaoBank at Aa2, the same level as the country’s sovereign credit rating.

The likely expansion of KakaoBank into household, merchant and mortgage loans that will be enabled by the injection of capital from the IPO will put further pressure on the established banks, already involved in cut-throat competition, local financial media say.

Those banks’ wide networks of physical branches are an economic drag that KakaoBank, a digital-only platform, has effortlessly leapfrogged. Their online banking services are also widely criticized for being overly complex.

KakaoBank’s debut reflects the ongoing trend of a healthy expansion of South Korea’s industrial portfolio.

The country is home to high-tech manufacturers like Samsung Electronics, LG Electronics and SK hynix, alongside traditional metal bashers like autos giant Hyundai Motor and world-leading shipbuilder Hyundai Heavy.

It also boasts established players in the online sector, such as search engines Naver and Daum, gaming companies like Nexon and NC Soft, and platform company Kakao.

KakaoBank reflects this lean toward new economy players – particularly given the way online firms have been boosted by the pandemic.

“KakaoBank has been helped by Covid, as everything online has boomed, but it looks as if it is going to stick,” Tony Michell, an economist who teaches at Korea Development Institute, told Asia Times. “There are new spaces for every kind of software startup, and there is a new generation of very good Korean software engineers – many coming out of Kakao.”

Friday morning’s offering – coming, as it does, amid a crackdown on metropolitan property speculation, which has closed off one of the traditional destinations for South Korean capital – shows a strong appetite for IPOs.

“There is a lot of money in Korea looking to go somewhere rather than real estate area or low-yield bank accounts,” said Michell. “IPOs are hot now.”

Moreover, a startup ecosystem has also come of age, pivoting the country’s financial system away from its traditional focus on conglomerates and resulting in South Korea birthing one of the world’s top 10 flocks of unicorns.

This – combined with a broader dearth of investment destinations worldwide, sending global capital in search of opportunities – makes now a fecund time for a South Korean to establish a venture.

Venture investment in South Korea in H1 2021 hit 3 trillion won, 85% higher than the same period last year, according to a press release sent to foreign reporters by the Ministry of SMEs and Startups. Winning sectors included ICT services, commerce, bio and medical, the release said.