Backer of K-pop’s BTS pushes ahead with IPO plans
Big Hit Entertainment, the company behind South Korean boy band BTS, is pushing ahead with plans for an initial public offering this year aimed at raising nearly $1bn, despite mounting fears over potential disruption from the rapid spread of coronavirus.
The IPO is expected to be one of the largest in years in South Korea’s entertainment industry thanks to the global popularity of BTS, which is spearheading the rapid international expansion of the K-pop genre.
Investment bankers close to the situation said the company’s total valuation could be as much as Won6tn ($5bn), with Big Hit set to take top spot in the country’s music industry after reporting blockbuster revenue growth last year. The company is aiming to raise Won1.2tn ($990m) with the sale of a 20 per cent stake in a listing in the second half of the year, one banker said.
The privately held company this month reported operating profit of Won97.5bn for 2019 — more than the combined forecast earnings of the country’s three biggest music management companies. It said sales nearly doubled to $500m last year.
Big Hit has chosen JPMorgan, NH Investment & Securities, and Korea Investment & Securities as lead managers for the listing, while Mirae Asset is a joint manager, said the bankers familiar with the situation.
“The IPO will draw a lot of interest from investors as the K-pop industry has become quite attractive,” said an investment banker close to the company. “Big Hit is a highly profitable company with a well-established global concert platform.”
The seven-member boy band BTS has performed to more than 2m fans worldwide since late 2018, selling out London’s Wembley Stadium in 90 minutes along the way. It is the first pop music group from South Korea to gain a foothold in the US market, winning a Billboard music award.
But some analysts raised questions about the company’s high valuation and the potential impact of the spiralling viral outbreak.
“There are clearly some risks. The virus can disrupt the band’s concerts worldwide, denting the company’s earnings this year,” said the investment banker.
The coronavirus epidemic has already derailed listings and disrupted dealmaking in China, where the outbreak originated, and bankers have warned of an impact on activity more broadly across Asia.
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The Kospi Composite Index fell 3.9 per cent on Monday as markets around the globe slumped in response to new evidence that the virus was spreading globally, before recovering some poise on Tuesday to post slight gains.
Yoo Sung-man, an analyst at Hyundai Motor Securities, estimated the company’s value at less than $2bn, far short of market expectations, noting that BTS members face mandatory military service, which could disrupt the band.
“The company’s earnings are likely to peak this year as some BTS members are likely to be conscripted next year,” said Mr Yoo. “The company does not have many other idol groups that can take up the slack.”
“The key to the IPO will be how to [show] investors that the company is capable of creating new success stories other than BTS,” said the investment banker.
Founder Bang Si-hyuk, who formed BTS in 2010, is Big Hit’s largest shareholder with a 43 per cent stake, followed by gaming group Netmarble with a 25 per cent stake, according to a regulatory filing by the company.