SEOUL -- Shares in South Korean game developer Krafton plunged on Tuesday in a disappointing market debut for the developer of worldwide hit "PlayerUnknown's Battlegrounds," or PUBG, amid concerns over the company's exposure to China.
Krafton closed at 454,000 won ($395) per share on the benchmark Kospi exchange, down 8.8% from its initial public offering price of 498,000 won, but 1.2% above it's official starting price of 448,500 won. The shares swung in a wide range, dropping as much as nearly 20% from the IPO mark, and never managed to rise above that level.
Analysts cited a convergence of reasons making investors reluctant to aggressively buy the stock.
"First of all, its valuation was set [too] high," said Kim Hak-joon, an analyst at Kiwoom Securities. "Second is the regulatory issue in China. And third, there are too many [Krafton] shares trading in the market."
The highly anticipated debut came after South Korea's financial regulator in June questioned the valuation and demanded that the company correct its IPO prospectus. Krafton later cut the IPO price target by more than 10%, yielding to Financial Supervisory Service pressure.
Political risks in China, a key market, have also begun to emerge as government authorities there move to tightly regulate the country's online gaming market.
Internet giant Tencent last week said it would curb minors' access to its flagship video game, Reuters reported. The announcement came hours after Tencent's shares were hit by a reaction to an article in Chinese state media that characterized online games as "spiritual opium."
China is Krafton's biggest market. In its prospectus, the company said 68.1% of its revenue in 2020 came from "a publisher." It did not release the name, but analysts assume it is Tencent, which publishes "Battlegrounds Mobile," PUBG's mobile version in the country and around the world.
Image Frame Investment, a subsidiary of Tencent Holdings, holds a 13.6% stake in Krafton, making it the second-largest shareholder after Chang Byung-gyu, the South Korean company's founder and chairman.
Toh Zhen Zhou, an analyst at Aequitas Research, said in a note published on Smartkarma that about 55% of the institutional tranche, or 3.1 million shares, of Krafton's IPO, was not subject to lockup, letting holders unload them whenever they want.
Despite the lackluster start, Krafton still became the No. 1 game company on the Kospi with a market value of 22.2 trillion won, surpassing domestic rivals NCSoft and Netmarble. Nexon, another major game developer, is listed in Tokyo. Nexon was established in Seoul in 1994, but later moved its headquarters to Tokyo, where it is currently listed on the Tokyo Stock Exchange.
The debut performance also makes Krafton the exchange's 19th-largest component.
The company had raised 4.3 trillion won in its IPO, the second-highest figure on the Kospi, lagging only the 4.9 trillion won raked in by Samsung Life Insurance in 2010.
Krafton had expressed confidence last month, saying that long-term investors, including foreign pension funds, participated in the company's book-building, or price-setting, process, and expressed interest in its leadership in the battle royale game genre.
The company has said it will use 70% of the IPO proceeds to buy gaming intellectual property, as well as on mergers and acquisitions of global game development studios. It will invest the remainder in expanding its presence in emerging markets such as India, the Middle East and North Africa.
Chang established Krafton with a vision to make it a global powerhouse in the massive multiplayer online role-playing genre, known as MMORPG. The company became a leading player in 2017 as PUBG became a global sensation.