Mirae Asset Securities is expanding its acquisition finance business again after operating it conservatively for a while. As provisioning for and follow-up handling of bad assets that arose in past acquisition finance deals have been largely wrapped up, it plans to broaden its touchpoints with private equity fund (PEF) managers and actively source new transactions.
Vice President Seong Joo-wan, who heads the IB1 division at Mirae Asset Securities, said he would gradually increase the scale of acquisition finance by using proprietary funds such as short-term notes and investment management accounts (IMA). However, he drew a line, saying IMAs should not be pushed recklessly as "ammo" just to win IB transactions. The idea is to operate step by step, prioritizing the soundness and recoverability of assets over short-term size competition.
In the initial public offering (IPO) market, the multiple listing rule and weakness in the KOSDAQ market are weighing on activity, but the book-building market for institutional investors is still seen as solid. The plan is to leverage Mirae Asset's competitiveness, which is strong not only in large-cap KOSPI listings but also in listings by small and venture companies, to break through market weakness.
Seong also predicted the IB market would maintain a conservative tone in the second half. He said equity capital market (ECM) and debt capital market (DCM) transactions are being broadly delayed due to rate pressures. Still, if market volatility eases in the fourth quarter and expectations build for future rate cuts, there is a chance deferred transactions will resume.
The following is a Q&A with Seong.
—Mirae Asset Securities has recently been aggressively expanding acquisition finance. Has the strategy changed compared with before?
"Rather than saying we changed the strategy, it's more accurate to view this as getting the acquisition finance business back onto a normal growth track. Mirae Asset Securities was quite aggressive in the acquisition finance market until six to seven years ago. After burdens arose in some transactions, we ran conservatively for a while, but the assets that were problematic in the past now carry little burden as we have set aside provisions or handled them afterward.
Since last year, we have been expanding acquisition finance little by little. The size of each transaction may vary depending on market conditions, but the number of deals is steadily rising. Recently, we have been engaging more actively with private equity (PEF) managers and are looking to propose transactions more proactively."
—Beyond strengthening marketing to private equity, what other changes are there?
"We will not stop at arranging acquisition finance; we also intend to increase the amount we acquire directly by using funds managed by Mirae Asset Securities, such as short-term notes and IMAs. Rather than a structure in which a securities firm arranges a transaction and then sells down the entire amount to institutional investors, we will, within a reasonable range, commit our own capital.
—Mirae Asset Securities has launched up to IMA No. 3. Some say IMAs could reshape competition among securities firms' IB units.
"An IMA can indeed be a means to enhance IB competitiveness. If a securities firm proposes to acquire a larger amount than others by using IMA funds, the issuer or private equity will inevitably have a stronger incentive to transact with that firm. On that relationship, the firm could also win other transactions.
However, the essence of an IMA is not to secure IB competitiveness but to manage client funds stably and return profits. If, just because there is ample capital, you lend to corporations that should not receive loans or loosen your screening, when the market turns difficult the blowback will ultimately be felt by IMA clients. We should not swing the sword of the IMA excessively just to win IB transactions."
—How does Mirae Asset Securities plan to manage IMA funds, in principle?
"We will expand gradually and steadily, and as much as possible select assets that are safe yet can generate appropriate returns—that is the basic direction. If you raise a large IMA and deploy funds aggressively in a short period, you can quickly boost profits for now, but if the economy or financial markets are shaken hard within two to three years, situations could arise that are hard to withstand.
Each securities firm may have a different risk appetite and operating strategy. It is hard to say any single approach is always right, but Mirae Asset Securities is placing more weight on managing risk and operating step by step rather than rapidly scaling up appearances."
—What is the overall tone of the IB market this year?
"In the first half, there were not many large transactions in IB that could shift market trends. Even for paid-in capital increases, there were not many big deals that closed, and corporate bond issuance also declined from before due to rate pressures. It is also hard to say the environment for new transactions in acquisition finance has improved.
If rates remain around current levels, it is hard to be optimistic about the second half either. Demand for refinancing is falling, and corporations are postponing paid-in capital increases and bond issuance. With share prices down sharply, companies are also delaying fundraising using price return swaps (PRS)."
—Do you think the IB market's low growth will continue in the second half?
"At least through the third quarter, there is a chance that various transactions will continue to be postponed or delayed. However, if the market stabilizes in the fourth quarter and expectations form that rates could fall next year, market interest rates could preemptively reflect that. If so, transactions that had been delayed could reemerge, and the market could become active."
—Do you also plan to strengthen the DCM sector?
"We are, of course, strengthening DCM. This year we added about five people to DCM. The corporate bond market being weak is no reason to scale back DCM, and we will steadily build competitiveness in line with market conditions.
However, Mirae Asset Securities is, at its core, a company strong in "investment." Considering the group's direction and the organization's strengths, even in IB we cannot help but place more weight, in the long run, on finding and investing in growth companies centered on ECM. While expanding DCM, we will maintain an ECM-centered identity."
—As an IPO expert, how do you view the market? (Seong began in the IPO team at Daishin Securities, moved to the IPO department at Daewoo Securities in 2007, and served as head of IPO at Mirae Asset Securities starting in 2020.)
"The IPO market is still maintaining a solid trend at the institutional book-building stage. However, the multiple listing rule has dampened sentiment at large KOSPI corporations preparing to list, and there are successive cases of KOSDAQ-listed companies seeing their shares fall right after listing. If this trend is prolonged, even institutional investor sentiment could weaken and the book-building market itself could shrink, so we are watching closely."
—How have the strategies of companies preparing to list changed since the multiple listing guidelines came out?
"I understand many are preparing to complete the required procedures, such as board approval and shareholder meeting consent. What companies are weighing now is not whether to list, but when to start. They are considering whether to begin listing work now in line with the guidelines, or to watch other companies' cases and market reactions and start next year. They are also watching for further explanations from policymakers and the flow of public opinion."
—What side effects do you think the multiple listing rule could bring?
"If a subsidiary needs a large amount of capital to grow but multiple listings become virtually impossible, the parent will have to raise funds through a capital increase or borrowing and pass them down. But if the parent also finds it hard to raise funds, it will ultimately have no choice but to sell subsidiaries with strong growth potential.
If a subsidiary is sold, cash will come in immediately, but the parent could lose its future growth engine, and it could actually have a more negative impact on the parent's share price. There may not be many such cases right away, but after holding out for a while, companies could end up selling subsidiaries."
—What are Mirae Asset Securities' differentiated strengths in the IPO sector.
"Mirae Asset Securities is good at large IPOs, but compared with other major securities firms, it also has considerable strengths in IPOs by small companies and ventures/startups. The number of companies that have filed or are preparing to file for preliminary listing review this year is not small.
Our strength is that we do not look only to large transactions, but can identify companies at various growth stages and connect them to listing. If we wrap up the transactions under preparation without a hitch, we think we can hold our own against other securities firms even if the market environment is weak."
—You operate a separate IPO Solutions organization.
"In the past, frontline IPO staff handled everything from responding to reviews by the Korea Exchange (KRX) and the Financial Supervisory Service to sales targeting institutional investors. As transactions increased and grew in size, we created an organization dedicated to sales and syndication, because having one team handle everything could reduce expertise in review responses or sales.
The same personnel have built relationships with institutional investors over many years, improving sales competitiveness. If someone who has maintained a relationship for nearly five years explains a difficult transaction, institutions can trust that opinion more than that of a first-time contact. The IPO Solutions organization can also more precisely identify what concerns investors. In bringing to fruition IPOs in tough market conditions, such as EcoPro Materials, the sales capabilities of this organization played an important role."
—What is the role of Mirae Asset Securities' IB division within the group?
"Naturally, generating profit is the first role. In addition, we must support the global business and wealth management (WM) and pension businesses that Mirae Asset Group is focusing on.
By identifying good companies through IPOs and investing, we can create a virtuous cycle by introducing them to WM clients. Some securities firms have a model where the WM organization finds companies and passes them to the IPO division, but Mirae Asset Securities aims to strengthen a model where the IPO organization first identifies good companies and invests, then links with WM."