LG CNS, one of South Korea’s most anticipated initial public offerings (IPOs) of the year, tumbled nearly 10% on its first day of trading on Feb. 5, reflecting a sluggish IPO market and concerns over dual listings.
The weak debut dealt a blow to hopes that the domestic IPO market had a strong start this year. Among the eight companies that have gone public so far this year, seven—including LG CNS—have seen their shares fall within the first five days of trading, dropping as much as 46% below their IPO prices.
Retail investors who had expected strong first-day gains now face potential losses. “IPOs used to cover the cost of fried chicken for dinner, but it looks like that era is over for big public offerings,” said one investor.
LG CNS had been one of the most highly anticipated IPOs of the year, drawing over 21 trillion won ($15 billion) in deposits from retail investors during its subscription process on Dec. 21-22. Founded in 1987, LG CNS is the system integration (SI) arm of LG Group, reporting an operating profit of 464 billion won in 2023.
Despite strong fundamentals, its stock price plunged 9.85% on its first trading day, mainly due to concerns over dual listing. The company’s largest shareholder and holding company, LG Corp., holds a 49.95% stake in LG CNS. With both the parent company and its subsidiary now listed, investors worry that the IPO has diluted LG Corp.‘s value, a concern that had already driven the parent company’s stock down 30% from its early 2023 peak of 103,500 won. On the day LG CNS went public, LG Corp. shares closed at 72,100 won.
“With all major subsidiaries in the LG Group now listed, the parent company’s stock risks losing value,” said the Korea Corporate Governance Forum. “It raises the question of whether the IPO was necessary given the parent-subsidiary overlap.”
This is not the first time LG’s affiliates have faced such criticism. In 2022, LG Chem spun off its battery division into LG Energy Solution and listed it separately, leading to a 16.57% decline in LG Chem’s stock within a month.
However, LG CNS CFO Hyunkyu Lee defended the listing, stating, “LG CNS was established in 1987 as a joint venture with U.S. firm EDS, making it fundamentally different from the holding company. It should not be considered a dual listing.”
Another major reason for LG CNS’s weak debut is the large volume of selling existing shares without issuing new stock through a secondary offering, which investors typically view as a red flag. Unlike IPOs that issue new shares to raise capital for the company, a significant portion of LG CNS shares came from existing investors cashing out. Notably, 30,051,907 shares (35% of the total outstanding shares) were sold by Macquarie Asset Management’s private equity division, which acquired them from LG in April 2020.
The relatively low percentage of shares under lock-up agreements also dampened investor sentiment. With fewer restrictions preventing institutional investors from selling, institutions offloaded 1.55 trillion won worth of LG CNS shares on the first day, while foreign investors net sold 292 billion won.
Investors also questioned LG CNS’s valuation. Although LG CNS has many customers, 60% of its sales come from LG Group affiliates, meaning that while the company has a stable revenue stream, its growth potential is limited. One market analyst in Yeouido remarked, “How does it make sense for an IT services department to command a market cap of over 5 trillion won?”
