IPOKreeeeeiiiiiisch! K-pop on the stock exchange

Do the members of the K-pop group BTS have to move in soon? That would be bad for the label’s share priceimago images / ZUMA Wire

Love and suffering are often close together. Teenagers know this, just think of the breakup of the British pop band Take That in the late 1990s. Similar dramas as then are likely to take place today among shareholders in South Korea, also because of a boy band. The background to this is the listing of the music label Big Hit Entertainment, the largest Korean IPO in three years. It first caused a stir on the trading floor – and then disappointed faces. In both cases, it was apparently the label’s workhorse, the K-pop group BTS.

The seven-piece boy band was formed by Big Hit Entertainment in 2007. Since then there has been a huge hype around the group. As the first Korean band, they even made it to the top of the US charts a few weeks ago with their English-language song “Dynamite”. For Big Hit, this success should not be underestimated. The agency reportedly generated nearly 90 percent of its revenue from BTS in the first half of 2020.

The entertainment industry is a growing branch in South Korea, K-Pop an important export hit – at least since 2012, when the Korean rapper Psy stormed the western charts with “Gangnam Style”. Korean pop singers have so far been significantly more popular in Asian countries than in Europe and the USA. In China, K-Pop is very popular, according to a report by the Japanese investment bank Nomura. In some years group trips to Korea among the Chinese would have had a high “coolness factor” for that reason alone. Big Hit obviously doesn’t want to be satisfied with that and is preparing to conquer the US market with BTS. A project that could now stall.

A flight of highs of short duration

When Big Hit went public in mid-October, the share price soared at first. At the end of the first day of trading, it was more than 90 percent above the issue price. The fans of BTS who wanted to support their stars by buying a share are probably responsible for the price fireworks. But institutional investors also took hold.

The soaring did not last. The share price has plummeted from 258,000 won (195 euros) to 157,000 won (119 euros) since the end of the issue day. This means that it is still above the starting price of the equivalent of 100 euros. A success story looks different, however. Apparently, professional investors in particular quickly sold off their shares again when it became clear that the rating of the label on the stock market was taking on completely unrealistic traits.

The share price is likely to remain under pressure, because big hit threatens bad: In South Korea all young men are obliged to do military service for two years, there is no right to conscientious objection. The oldest member of BTS, Kim Seok-jin, known as Jin, has to report to the weapon by the end of next year. The younger band members follow successively. For Big Hit, a forced break for their money maker would probably threaten their existence.

Exemption from conscription?

Investors in Germany are likely to leave the drama about the K-pop band and military service cold. Korean stocks carry a lot of weight in many Asian equity funds. The stocks of Big Hit or other music labels are usually not to be found in it, rather classics such as the shares of the conglomerate Samsung or stocks from the healthcare industry.

For fans of BTS who grabbed the IPO and are now equally concerned about the value of their shares and the professional future of their idols, there may be a ray of hope. According to media reports, some South Korean politicians are calling for the members of the boy band to be exempted from conscription. The reason: With their success they already support their country enough.

Discussions about musicians and conscription are not new. Twenty years ago, the Turkish pop star Tarkan (biggest hit: “Simarik” – exactly, the song with the two kisses) lived in France for a time to avoid serving as a weapon. At that time, Turkish politicians were considering appointing him a cultural ambassador in order to save him military service and to bring him back to Turkey. Ultimately, Tarkan was able to buy his way out and only had to serve one month instead of 18 months after paying the equivalent of 15,000 marks. A way out that may also be an option for BTS members. In any case, they would have enough money: Big Hit’s IPO should have made all seven millionaires.

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