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IPO

South Korea's Kakao Bank defends valuation method ahead of IPO

Digital lender aims to reach Asian markets after next month's share flotation

Kakao Pay and Kakao Bank are affiliates of internet company Kakao, best known for its KakaoTalk instant messaging service. (Photo by Yuki Kohara) 

SEOUL -- Digital lender Kakao Bank is defending its valuation method ahead of an initial public offering next month, after South Korea's financial regulator demanded that a pair of big name companies correct their filings.

CEO Yun Ho-young said Tuesday that Kakao Bank's valuation, calculated in comparison with global peers rather than local lenders, is reasonable because digital banks differ from conventional ones as their businesses are based on mobile devices and do not require brick-and-mortar branches.

South Korea's largest digital bank, in its IPO registration, suggested a market capitalization between 15.7 trillion won ($13.6 billion) and 18.5 trillion won, applying an average 7.4 price-to-book ratio of four global peers -- Rocket Companies, Pagseguro Digital, TCS Group Holding and Nordnet AB.

"As an internet bank, we have a different starting point. We are unique, as we do our business based on mobiles, with no physical contact," said Yun in an online news conference on YouTube.

His comments come after the Financial Supervisory Service on Friday demanded that Kakao Bank's sister company, Kakao Pay, correct its IPO prospectus, saying it could mislead investors' "reasonable judgment." The regulator did not give a reason, but analysts say it is likely related to the fintech and payment company's initial valuation, which was based on comparisons with international cohorts Paypal Holdings, Square and Pagseguro Digital.

Kakao Pay said Monday that its IPO may be delayed due to the FSS action.

Last month, Krafton, a leading online game developer, cut its IPO price by more than 10%, complying with an FSS order to correct its registration. The change deprived the company of the chance to become the country's largest IPO after it lowered its fundraising target to 4.3 trillion won from the previous 5.6 trillion won.

Kakao Bank and Kakao Pay are both affiliates of South Korean internet company Kakao, known for its KakaoTalk instant messaging service.

Regarding Kakao Bank's post-IPO plans, Yun said his company will weigh moving into overseas markets, with Asia being the likely first destination.

"We will consider actively going to overseas markets after expanding our capital with the IPO," said Yun. "It could be capital investments, or joint ventures with fintech partners," he said.

Yun also said the lender will launch its all-mobile mortgage loan service in South Korea sometime this year, which he believes will expand its customer base. He said the lender will use advanced technology to provide mortgage loans without the need to meet borrowers in person.

So far, Kakao Bank has focused on offering credit to top-tier customers, but it aims to widen its services to homebuyers, small business owners and non-Korean residents of the country, as well as those unable to borrow money from traditional banks.

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