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BTS agency Big Hit scores dynamite IPO in Seoul

Share close down 4% amid concerns company relies too heavily on one act

BTS has focused on online content, including streaming concerts, to offset the impact of the coronavirus pandemic on live shows.   © Getty Images

SEOUL -- Big Hit Entertainment, the agency behind global K-pop sensation BTS, scored a dynamite stock market debut in Seoul on Thursday, with its shares opening at more than twice its initial offering price.

Its first day of trading proved volatile, however, with shares hitting the daily limit of 30% in morning trade only to end the day 4.44% lower at 258,000 won -- a sign of the expectations and concerns surrounding the agency's biggest act.

Big Hit, whose shares opened at 270,000 won, raised 962.6 billion won ($839.4 million) in its market debut, making it South Korea's largest IPO since Celltrion Healthcare raised 1 trillion won in 2017. The debut boosted Big Hit's market cap to 8.7 trillion won, putting it the 33rd among constituents of the Kospi index.

Analysts say the roller-coaster trading on the listing day reflects investors' mixed views on the agency's future.

"The price chart show that expectations and worries over the company are clashing fiercely," said a senior analyst at a local brokerage house, asking not to be named. "Big Hit paints a rosy picture of the company, but investors worry over its heavy reliance on BTS and the group members' uncompleted military service."

In South Korea, all males must perform 18 months of mandatory military service before they turn 28. There are some exceptions granted for sports stars and classical musicians, but so far no pop stars have been exempted.

Big Hit founder and CEO Bang Si-hyuk, speaking at a listing ceremony at the exchange, vowed to turn the agency into the world's "best entertainment and lifestyle platform company. ... We understand the fandom business better than anyone in the world. We can transfer this to create value."

But while Bang laid out big ambitions for the company, the fact remains that more than 80% of its revenue comes from BTS, raising questions over whether the agency is too reliant on one act.

The looming military service for its seven members is just one potential shadow on Big Hit's future.

The agency's listing also comes just days after BTS leader RM sparked a firestorm of criticism in China with his remarks on the Korean War. Remotely addressing an awards ceremony at the New York-based Korea Society last week, RM said South Korea and the U.S. have shared a "history of pain" since the war -- a comment that did not go down well with either Chinese media or the country's internet users.

China fought on the side of North Korea against South Korea and the U.S. in the war, which lasted from 1950 to 1953. Beijing calls it the "Anti-U.S. Assistance War," to emphasize its alliance with Pyongyang.

While BTS has a relatively small following in China, the furor has impacted South Korean and other companies that have marketing ties to the band.

Listings featuring Samsung Electronics' BTS special edition smartphones and earphones disappeared from Chinese e-commerce platforms Tmall and JD.com as the controversy swirled. BTS-related posts from other companies, including sports fashion brand FILA and automaker Hyundai Motor, which have endorsement deals with the seven-member group, also disappeared from their official Weibo accounts, Chinese users said.

Big Hit did not respond to Nikkei Asia's request for comment on the issue.

Analysts had expected the stock to surge past its IPO price after BTS proved that its online content can offset the impact of the coronavirus pandemic on live concerts. Hana Financial Investment, a local brokerage house, set its target price at 380,000 won, 181% higher than the IPO price.

"We forecast that the company's growth will continue for some time thanks to the success of BTS, its flagship act, in the global market," said Kim Ji-young, an analyst at Kyobo Securities. "The company proved this in the first half of this year, overcoming the pandemic with sales of online content."

Big Hit founder and CEO Bang Si-hyuk remains the agency's biggest single shareholder, with a 34% stake, followed by game developer Netmarble with 20% and private equity STIC Investment with 7%. BTS's seven members together own a 1% stake, given to them by Bang in August as an incentive.

Eugene Investment & Securities said it expects Big Hit to quickly join the prestigious Kospi200 index, thereby attracting 64 billion won worth of passive funds. According to the brokerage, Big Hit will meet the index's minimum requirement of a 4.5 trillion won market cap given that its IPO price already valued at 4.6 trillion won.

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