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Tencent-backed group behind hit game ‘PUBG’ tumbles on market debut

Tencent Holdings Ltd updates

The Tencent-backed group behind global hit game PlayerUnknown’s Battlegrounds fell sharply in its trading debut on concerns over its high valuation, after raising $3.8bn in South Korea’s biggest initial public offering this year.

Shares in Krafton dropped close to 20 per cent in morning trading in Seoul on Tuesday and the company’s stock market capitalisation fell to about Won22tn ($19bn). Shares were down almost 12 per cent in late afternoon trading.

Krafton endured a difficult run-up to its IPO, the second-largest in South Korean history. The company cut its listing price by more than 10 per cent following pressure from regulators over its high valuation.

The IPO was also hit by fears over Krafton’s growth prospects in China, where Beijing has launched a regulatory crackdown on the tech sector. The company relies heavily on Tencent, the Chinese internet group, to distribute PUBG in the country.

“The price fall shows that its IPO price was too high, given its high dependence on a single game and doubts about its capability to develop new hit games,” said Wi Jong-hyun, an economics professor at Chung-Ang University in Seoul. “About half the current price seems to be fair value to me, compared with its rivals, as the popularity of PUBG has peaked.”

Krafton remains South Korea’s biggest gaming company by market capitalisation, ahead of rival NCSoft at Won17.8tn.

Korea is set for a record year for IPOs in terms of funds raised, backed by interest from retail investors and foreign institutions, with the benchmark Kospi index trading near all-time highs. But Krafton’s listing drew a lukewarm response from retail investors, with many deeming its valuation to be too expensive.

Krafton, formerly known as Bluehole, was founded by Chang Byung-gyu in 2007. PUBG, a game in which players fight to the death on a remote island, was released in 2017 and accounts for the bulk of the company’s revenues. The mobile version of the game has been downloaded more than 1bn times.

Krafton’s operating profit more than doubled to Won774bn last year as sales jumped more than 50 per cent to Won1.67tn.

The company is accelerating efforts to enter new markets such as India, and trying to diversify its revenue streams by creating animated movies and other interactive content. Krafton plans to launch a new PUBG title this year and a so-called survival horror game in 2022.

Shares in South Korean gaming companies were hit earlier this month when Tencent came under intense pressure from Chinese state media, which labelled gaming “spiritual opium”. Tencent has announced restrictions on how long minors can play its online games.

Korean companies need Beijing’s approval to distribute games in China, which banned sales of new titles and other cultural products in 2017 following Seoul’s decision to host a US missile defence system.

China has approved the sale of several Korean video games since late last year, raising hopes for companies such as Krafton.

“China is still a major market for many Korean game developers and they have been trying to win a licence from Beijing amid improving bilateral relations,” said a gaming industry official. “But the country’s tougher stance against the gaming sector throws cold water on these efforts.”

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