A South Korean company preparing to go public recently excluded two securities firms, NH Investment & Securities and Korea Investment & Securities, from participating in the competitive presentation process of hiring underwriters for its initial public offering (IPO).
The two securities firms are facing a class-action lawsuit for the controversial IPO of Fadu, a fabless semiconductor startup that went public in August this year. Companies aiming to go public are now shunning the two securities firms, who were the main IPO underwriters of Fadu, concerned that selecting these companies could put them at a disadvantage during the screening process by the Korea Exchange.
"NH Investment & Securities and Korea Investment & Securities received a request for proposal (RFP) from the listing organizers and went through the relevant procedures such as submitting proposals, but were excluded from the final competitive presentation schedule, which is highly unusual," said a source with knowledge of the matter on Dec. 1.
The reason why companies are ruling out NH Investment & Securities and Korea Investment & Securities is because the two securities firms have been suspected of the fraudulent IPO of Fadu. When the two underwriters submitted Fadu's securities filings to the Financial Supervisory Service on June 30, they estimated Fadu's annual revenue to reach 120.2 billion won ($92.4 million) this year.
However, the company's second-quarter revenue fell short of expectations, which sent shockwaves through the industry. Fadu's revenue for the second quarter was 59 million won and third quarter revenue remained weak at 320 million won, plunging by 97.6 percent from a year earlier.
The Financial Supervisory Service launched an investigation into NH Investment & Securities and Korea Investment & Securities on Nov. 8, after Fadu's stock price plummeted after its weak earnings.
Law firm Hannuri Law is preparing to file a class-action suit against Fadu and its IPO underwriters. "The underwriters should have suspended the listing process, but they falsely filed the listing documents," Hannuri said.
The two securities firms are expected to be excluded from prospective IPOs in the meantime. "Going public is a key step in attracting large-scale funding and laying the foundation for future growth, and companies shouldn't have to deal with the anxiety of an unreliable underwriter," said an industry insider.