Daum Communications, Korea's number one internet portal, was forced to postpone its proposed listing of American depositary receipts (ADRs) Tuesday amid evaporating investor demand.
The Seoul-based company had hoped to sell 10 million ADRs at about $18 to raise as much as $180 million. Each ADR would have represented a fifth of one underlying shares. The company cancelled the offer after investors demanded a 10% to 20% discount to the underlying share price, bankers involved with the transaction said. That would have meant selling for as low as $11.80. Merrill Lynch and Credit Suisse First Boston (CSFB) managed the offer. Lehman Brothers was co-manager.
"The issue was postponed because of poor market sentiment towards portals," said a banker at CSFB. "If market sentiment turns around we might try again."
Daum is the first high-profile Asian internet company in several months to fail to execute its listing. In June, Indian portal Rediff.com successfully sold ADRs on Nasdaq and Silverline Technologies, an Indian information technology company sold ADRs on the New York Stock Exchange. Within the last two weeks, Chinese portals Netease.com and Sohu.com both listed on Nasdaq. Those listings soaked up what demand there was for Asian portals; and China's size and growth prospects are more appealing to investors than Korea's, analysts say.
"Although Daum is number one in Korea, the growth potential in China is bigger," says Raymond Chan, a fund manager at Hong Kong-based Hamon Investment Group, which has $500 million under management.
Daum wasn't helped, either, by sharp fluctuations in its share price during the marketing period. It listed on Kosdaq, Korea's second board, in November 1999. After hitting a high of W298,000 ($267.62) in February, its shares fell to W82,000 on 18 July. They dropped 30% since the company announced its ADR sale last month.
"In the second half of last year and first quarter of this year, there was a share price euphoria in Korea and Kosdaq companies found it easy to raise capital," says Hamon's Chan. "Since then the operating performance of many of those companies has been disappointing and Kosdaq has lost some credibility. So although Daum is a good company it's been affected by that sentiment."
Plummeting portals
Neither did it help that on 18 July, the day Daum's bankers were trying to price the issue, shares of recently listed Asian portals plummeted. Shares of Sohu plunged nearly 22%, closing the day at $9.87, 24% below its launch price of $13. Netease fell 13% to $8.25, down 44% from a high of $14.75 on 6 July. And Sina.com fell 6.8% to $27.12, down 50% from a high of $54.50 on 22 May.
One of Daum's biggest shareholders is Bertelsmann Multimedia, the German publishing and media company. Bertelsmann, which has a 19% stake in Daum, had agreed to buy an equivalent percentage of the ADRs in order to maintain its stake. Bankers say it's a sign of the extent of "portal fatigue" that Daum couldn't get listed considering the size of the Bertelsmann order.
Daum's website provides e-mail, shopping, news and entertainment. It derives about 60% of its revenue from advertising. Of Korea's 15 million internet users, 11.8 million were registered with Daum at the end of May, resulting in about 45 million pageviews per day. That's 67% more than the 27 million average daily pageviews received by Sina.com China's biggest portal. Some 50% of all Korean internet users use Daum's e-mail, and its users are loyal to its community chatrooms.
Still, that doesn't translate into short-term profits. The company expects to release its latest figures on 21 July. In 1999 the company posted an operating loss of W946 million. In the first quarter of 2000 that loss ballooned to W1.5 billion. Analysts expect those losses to widen for the next four or five quarters at least. Daum's revenue in 1999 was W7.7 billion, up from W1.7 billion in 1998. In the first quarter of this year its revenue was W3.9 billion.
