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| Kakao and Naver logos |
Lawmakers criticize big-techs for 'greed,' vow to regulate
By Anna J. Park
Thursday was another day of free fall for Kakao and Naver with their share prices closing at 128,500 won ($109) and 399,000 won, respectively, falling 7.22 percent and 2.56 percent from the previous session.
With their shares already falling 10.06 percent and 2.5 percent, Wednesday, the two have lost a combined 19 trillion won in market capitalization in just two days, following the announcement of a government plan to strengthen financial regulations on big-tech platform companies.
The move by ruling party lawmakers to curb expansionary moves by such platform companies worked as a catalyst for the stocks' decline.
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As a result, Kakao dropped to sixth from fourth in the KOSPI rankings of firms with the largest market caps, dropping below Samsung Biologics and the preferred stock of Samsung Electronics. Its capitalization fell to 57 trillion won at Thursday's close from 68 trillion won Tuesday. Naver held onto third place ― despite closing at 65 trillion won the same day from 73 trillion won Tuesday ― trailing Samsung Electronics and SK hynix.
Foreign investors and institutions led the sell-off, disposing of 4.3 million shares in Kakao over the two days. They also net-sold 696,000 shares in Naver. As institutional investors also net-sold the stocks, only retail buyers remained positive.
Short-selling also prevailed for the stocks. Over 175 billion won was bet on Kakao's share price fall Wednesday, the largest amount short-sold for a listed Korean stock.
Due to this overheated short-selling, this was prohibited for Kakao shares for one day Thursday. Short-selling of Naver was also feverish, as 26.9 billion won was bet on a fall of the company's share price, Wednesday, the third-highest amount for a listed Korean stock. This figure was also 34 times more than the average shorted amount against Naver.
The nosedives were triggered by an announcement by the Financial Services Commission (FSC) and Financial Supervisory Service (FSS), Tuesday, that fintech companies' recommendations of financial products, such as insurance or investment products, through their platforms would be regarded as intermediation, rather than advertising. As intermediation by unregistered business entities is prohibited, big-tech and fintech companies need to modify or halt such services until they're qualified as registered entities for this business model.
The Democratic Party of Korea (DPK) lawmakers' move to curb Kakao's expansionary business model also shifted investor sentiment towards the company. DPK representatives Song Gab-seok and Lee Dong-ju jointly held an open symposium earlier this week, where various figures in the party voiced their opposition toward the "greed" of big-tech platform companies.
"The number of Kakao affiliates has risen to 118 in 2020, from 45 in 2015," Song Young-gil, the DPK chief, said at the symposium. "In the shadow of Kakao's success story lie various problems stemming from excessive market dominance."
"Kakao's recent moves, such as its attempts to raise the prices of its services and abuse its domineering power over small mom-and-pop shops, are raising concerns. The Democratic Party of Korea will not sit idly by in this situation," said Yun Ho-jung, the ruling party floor leader. "Kakao, which used to be a symbol of innovation and growth, has now become a symbol of greed and convention, as it seeks to maximize its interests by charging high fees."
The regulatory pressure on big-tech companies is coming from multiple fronts. Finance Minister Hong Nam-ki also said earlier this week at a National Assembly meeting that he'd fully support pending bills that legislate fairness issues regarding platform companies' businesses.
"Both pre-regulation and after-regulation concerning platform companies' businesses are deemed necessary," said Han Sang-hyuk, chairman of the Korea Communications Commission.
Kakao Pay faces problems ahead of IPO
The current moves are a nightmare for Kakao Pay, the financial arm of Kakao group, which is preparing for an IPO in early October. Kakao Pay delayed its IPO schedule once in the summer after the FSS asked the company to modify its securities registration report in July. With the request to re-submit the document, Kakao Pay lowered its lowest initial offering price per share from 63,000 won to 60,000 won.
Kakao Pay stressed this week that the company had already obtained the necessary license required by the financial authorities to conduct intermediation business through its platform.
Although the company's qualification is still intact, the real problem lies in its 11 trillion won valuation ahead of the IPO slated for October 14. As Kakao Pay lowered its offering price band by only 6 percent, market watchers say the company could face problems during its share allotment subscription process later this month.
"As corporate valuation reflects investor sentiment, the increased uncertainty will likely work as an unfavorable factor," a market insider said on condition of anonymity.
