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Media & Entertainment

South Korea's Kakao Games surges 30% in stock market debut

Investors bet social distancing measures will fuel growth for 'PUBG' publisher

Kakao Games, the South Korean publisher of the popular "PlayerUnknown's Battlegrounds" videogame, has drawn intense investor interest for its IPO.   © Getty Images

SEOUL -- Kakao Games surged 30% in its stock market debut in Seoul on Thursday, hitting the daily share price limit as investors expect further growth for the game publisher amid widespread social distancing measures.

The game publisher, a unit of internet company Kakao, saw its share price hit 62,400 won in the morning from its starting price of 48,000 won. Its IPO price was 24,000 won.

The explosive debut follows a record-breaking response to its public offering last week. The company had hoped to raise 384 billion won ($324 million) in preorders. It in fact received a total of 58.6 trillion won in bids from retail investors, surpassing SK Biopharmaceuticals' record of 30.9 trillion won set last month.

The portion of the 16 million newly issued shares offered to general investors was oversubscribed 1,524 times.

The intense competition comes as investors anticipate continued growth for the game company amid the coronavirus pandemic. Kakao Game's revenue increased 9% to 107.5 billion won in the second quarter year-on-year as people spent more time playing video games due to social distancing rules.

The IPO comes as Big Hit Entertainment, the South Korean agency behind boyband BTS, prepares to list on Kospi, the country's main bourse, next month. The Korea Exchange greenlit the listing last month, and the agency plans to take preorders from investors in early October. While Big Hit prepares to test investors' appetite for K-pop, BTS topped Billboard's Hot 100 chart last week with its new release "Dynamite," the band's first song fully recorded in English.

As for Kakao Games, analysts say the popular chat app operated by its parent will help fuel the game unit's growth. KakaoTalk is South Korea's largest messenger app, with 45.5 million average monthly users.

Kakao is the largest shareholder in Kakao Games, with a 58.96% stake. South Korean game developer Netmarble and Aceville, an affiliate of Chinese internet company Tencent, are second-biggest shareholders, owning a 5.63% stake each.

"We applied better valuations [to Kakao Games] compared to other local game developers, considering the benefits from the mega traffic platform KakaoTalk and cooperation with many Kakao affiliates," said Kim So-hye, an analyst at Hanwha Investment & Securities.

Lee Jin-man, an analyst at SK Securities, said Kakao Games is a strong candidate to become South Korea's version of Tencent Games if it pursues a similar path as the Chinese giant. "Using Kakao's platform and contents ecosystem to follow Tencent's mid- and long-term growth strategy would be effective," Lee said.

He said both Kakao Games and Tencent use their popular messenger apps to draw in users and both work with their affiliates to maximize their own corporate values by. The two companies are also aggressive in mergers and acquisitions, Lee added.

Kakao Games' lineups include "PlayerUnknown's Battlegrounds" by South Korean developer PUBG, the North American and European versions of "Black Desert" and recently launched role-playing game "Guardian Tales." One-third of its game revenue comes from overseas markets.

In related news, PUBG announced on Monday that it will no longer authorize Tencent Games to publish the mobile version of its popular game in India after the Indian government banned a number of games and apps provided by Chinese companies, citing concerns over privacy and user data management.

"PUBG Corporation has made the decision to no longer authorize the PUBG MOBILE franchise to Tencent Games in India," the company said in a statement. "PUBG Corporation will take on all publishing responsibilities within the country."

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