Lock-up free institutions’ selloff behind Big Hit stock plunge: market watchers

An instant 425.8 billion-won ($375.1 million) selloff by major shareholders of South Korean pop music agency Big Hit Entertainment appears to have caused a sharp decline of the Big Hit stock price in the days after its listing, market watchers said Thursday.

Two special purpose companies including the fourth-largest shareholder Mainstone -- which owned a combined 9.16 percent of common shares -- immediately sold nearly half of their holdings in Big Hit, after the company went public on the nation’s main bourse Kospi last week. A disclosure showed that their combined stake in the company, widely known as home to boy band BTS, went down to 4.72 percent.

The sell-off during the first five days of trading allowed the two SPCs to cash out 364.4 billion won in exchange for some 4.5 percent of Big Hit common shares. Market watchers speculate that Seoul-based private equity firm Easton Equity Partners, founded in 2019, is behind the two SPCs.

Another filing showed Thursday that STIC Investment, Big Hit’s third-largest shareholder and also a private equity house, divested 61.4 billion won of lock-up free shares on the date of listing Oct. 15.

Gaming firm and No. 2 shareholder Netmarble said in a disclosure its Big Hit stock holdings remained unchanged.

The high-volume selling by institutional investors, as well as Big Hit’s existing shareholders -- putting roughly 2.5 million shares up for sale for five trading days until Wednesday -- have piled pressure on the stock price, disrupting investors’ assessment of Big Hit valuation, analysts said.

According to Kim Hyun-yong, an analyst of Hyundai Motor Securities, another wave of selling activity is expected to come.

“Existing financial investors in Big Hit Entertainment will have a bigger impact on Big Hit stock price until they sell the entire shares not subject to lock-up restrictions than ones by institutional investors who participated in the IPO subscription,” Kim said.

After an IPO major shareholders face lock-up periods, during which they cannot sell their shares to prevent large swings in share prices in the aftermath of a listing.

But in the case of Big Hit, a few shareholders including Chief Executive Bang Si-hyuk, Netmarble and STIC faced such restrictions for part of their holdings.

This means Mainstone did not face lock-up restrictions. According to a disclosure, Easton No. 1 Private Equity Investment, another SPC that joined the sell-off, is affiliated to Mainstone.

The news came after one of the nation’s high-profile initial public offerings on Korea’s stock market this year enabled the K-pop powerhouse to raise 962.6 billion won by issuing nearly 30 percent of the common shares publicly.

Upon listing, however, Big Hit shares began to nosedive. Its stock price halved from the opening price in the stock market debut, through five trading days until Wednesday. In the meantime, retail investors bought nearly 2 million common shares.

Mainstone and Easton No. 1 first appeared on the disclosure of Big Hit in the fiscal year of 2019, indicating the two investors first bought Big Hit shares throughout 2019. The two obtained a combined 11.4 percent of stake in what was then a privately-held K-pop label from undisclosed shareholders.

While the lock-up period ranging from three months to six months was imposed on CEO Bang, Netmarble and STIC Investment -- institutional investors who bought Big Hit shares during the IPO will be eligible to sell shares starting November.

Big Hit Chief Executive Bang is the largest shareholder of Big Hit with 34.74 percent voting rights.

Big Hit on Thursday rebounded 0.6 percent, ending a five-day losing streak.

By Son Ji-hyoung (consnow@heraldcorp.com)