The hidden truth behind HYBE’s IPO four years ago

Private equity funds and shareholders strike a deal, sharing 30% of investment profits.

IPO details left undisclosed; HYBE states, “Not a reportable matter.”

It was recently revealed that HYBE’s founder and chairman, Bang Si Hyuk, earned approximately 400 billion KRW (about 300 million USD) during HYBE’s IPO four years ago. This was the result of a shareholder agreement with private equity funds (PEFs), where Bang received around 30% of their profits from the IPO. However, these agreements were not disclosed during HYBE’s IPO process. Despite HYBE’s dazzling debut—opening at 150% above its IPO price—the stock price plummeted as these PEFs dumped their shares, halving the value within a week.

Details of the Agreement

According to financial industry sources, Bang Si Hyuk signed shareholder agreements with Stick Investment, EastStone Equity Partners, and NewMain Equity before HYBE’s IPO (then BigHit) in 2020. These PEFs collectively held significant stakes in HYBE: Stick Investment owned 12.2%, while EastStone Equity and NewMain Equity owned 11.4%. The agreement stipulated that Bang would receive 30% of their profits post-IPO and would repurchase their shares with interest if the IPO failed within a set timeframe.

HYBE’s IPO succeeded in October 2020, with Bang and the PEFs reaping massive profits. Stick Investment, for instance, turned a 103.9 billion KRW investment into 961.1 billion KRW, while EastStone Equity and NewMain Equity also earned similar returns. Bang reportedly received around 400 billion KRW in total from these PEFs as part of their earn-out agreements.

Lack of Transparency

Such agreements between a major shareholder and PEFs are rare and controversial. The contracts were neither disclosed during HYBE’s listing review by the Korea Exchange nor mentioned in the securities registration statement submitted to the Financial Supervisory Service (FSS). This lack of disclosure is drawing criticism, as these PEFs were not subject to lock-up periods and sold 23.6% of their shares, worth 425.8 billion KRW, within the first four days of trading, causing HYBE’s stock to plummet.

HYBE justified its actions, stating, “Legal advisors and underwriters determined that this was a private agreement between shareholders and posed no financial harm to public investors. Therefore, it was not required to be disclosed in the securities registration statement.”

IPO Debut and Aftermath

HYBE’s IPO on October 15, 2020, began with a bang, as the opening price doubled its IPO price of 135,000 KRW, hitting the upper limit of 351,000 KRW. This marked a market capitalization of over 11 trillion KRW, fueled by BTS’s global popularity and record-breaking success, including their Billboard No. 1 hit “Dynamite.” However, within 30 minutes of trading, the stock began to tumble, closing 4.44% lower on the first day and dropping 22.29% the following day. Within a week, the stock had fallen to 150,000 KRW, less than half of its initial high.

The rapid sell-off by PEFs, which were not bound by lock-up periods, significantly impacted the stock price. Stick Investment sold 9.72% of its shares but voluntarily imposed a 3-month lock-up on 70% of its holdings, while EastStone Equity and NewMain Equity imposed no lock-up at all.

Regulatory and Legal Implications

The Korea Exchange officials involved in HYBE’s IPO review stated they were unaware of the shareholder agreements between Bang and the PEFs. One official commented, “If there’s a shareholder agreement among major shareholders, it must be reported to the Exchange. Neither the company nor the underwriters disclosed such agreements during the review.”

The FSS also noted that agreements sharing profits between major shareholders and PEFs should have been disclosed in the securities registration statement to inform potential investors. Legal experts remain divided: one argued, “Such agreements are crucial information for public investors,” while another stated, “Since it was a private shareholder agreement, it might not have been deemed relevant to the IPO process.”

SEE ALSO: HYBE Chairman Bang Si Hyuk's secret IPO deal with private equity firms sparks controversy