Summary of Key Points
This year, the activity of Korean companies going public for the first time to raise funds (IPOs) has significantly cooled down. In the past year, only 15 new companies were listed, raising approximately $700 million—far lower than the average of 80 companies and $8 billion in previous years, a figure even surpassed by Malaysia. However, the Korean Stock Market Index (KOSPI) has more than doubled, performing among the best in the world. The reason behind this is that chaebols (large family-owned business groups) have become a stumbling block for IPOs, and the government is working to change the regulations to address this issue. In the future, AI-related companies, especially chip manufacturers, may become the main drivers of IPOs. For example, SK Hynix plans to list in the United States to raise substantial funds.
I. This Year’s Korean IPOs Were Particularly Cold, a Significant Decline
In the past year, only 15 Korean companies went public, raising $700 million—almost half of the average annual amount of $800 million from 2020 to 2025. More embarrassingly, a small Asian economy like Malaysia had nearly twice as many IPOs and raised almost twice as much money during the same period. Strangely enough, the KOSPI has more than doubled, making it one of the best-performing major indices globally. This creates a stark contrast: while few new companies are being listed, existing stocks have performed well.
II. Why Are Chaebols Holding Back IPOs? Inheritance Taxes and Cross-Holding Practices Are to Blame
Korean chaebols, such as Samsung and SK, used to be pillars of the economy but now hinder new company listings. There are two main reasons:
1. High inheritance taxes: Assets over 3 billion won (about $2 million) are subject to a 50% tax. To reduce their tax burden, family-owned businesses deliberately keep their company valuations low and have fewer shares outstanding, avoiding expansion or listing.
2. Manipulative cross-holding practices: Many chaebols use a strategy where the parent company lists its subsidiaries while retaining control. This not only dilutes the value of the parent company ( harming minority shareholders) but also allows the family to continue to make decisions. Data shows that cross-held shares between parents and subsidiaries account for 11% of the total market value in Korean listed companies, compared to just 4% in Japan. The five largest chaebols (including Samsung and SK Hynix) control 70% of the market value, monopolizing the market.
III. The Government Is Taking Action to Change the Situation
To reverse this trend, the government has introduced a “Corporate Value Enhancement Plan” to address the issue of Korean companies having lower stock prices compared to their international counterparts:
- Reforming laws: The Commercial Act has been revised three times to protect minority shareholders’ rights and improve corporate governance.
- Banning parent-subsidiary splits: Exchange executives state that such splits, which allow parents to retain control while listing subsidiaries, are now prohibited as they harm minority shareholders.
- **Eliminating “zombie companies”: 300 insolvent companies will be delisted next year to redirect funds to new enterprises and provide more listing opportunities for qualified startups.
IV. AI Companies Become the New Hope for IPOs: Chip Giants Lead the Way, with Government Support
In the future, AI-related companies, especially those in the chip and AI infrastructure sectors, may drive IPO activity.
- Chips as a pillar: Chip manufacturers like Samsung and SK Hynix are crucial to the Korean economy. The development of AI requires a large number of chips, so these companies need funding for expansion.
- Government support: The state-owned National Growth Fund has invested $130 million each in AI chip startups Rebellions and FuriosaAI to help them grow.
- SK Hynix Plans to List in the U.S.: As one of the three largest memory chip companies globally (with the highest market share in HBM), SK Hynix plans to list in the U.S. to raise $294 million. This move is driven by the larger investor base in the U.S., which can lead to a higher company valuation. Additionally, there is a significant demand for high-bandwidth memory (HBM) used in AI, and the supply gap may persist for several years, making investors very optimistic.
V. Is the Decline in IPOs a Good or Bad Thing? Experts Have Different Views
- A double-edged sword: Researcher Lee from the Korean Capital Market Institute argues that fewer IPOs can increase parent company valuations, but an economic slowdown discourages venture capital investment in new companies and hinders their ability to exit the market.
- A more selective market: Park from EY believes that the decline in IPOs indicates a more selective Korean stock market, with capital focusing on high-quality companies in specific sectors (like AI). Korea already has 2,700 listed companies, half the number of the U.S., but its market value is only a fraction of the U.S.’s.
- A temporary phase: Exchange executives suggest that the decrease in IPOs is temporary and will improve as the government clarifies regulations on parent-subsidiary splits.
In summary, the current slowdown in Korean IPOs is due to chaebols and outdated rules. However, government reforms, along with the potential growth of AI companies, offer hope for a recovery in the future.