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BTS backer’s shares soar up to 160% on market debut

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Shares in Big Hit Entertainment, the music agency behind K-pop superstars BTS, more than doubled on their stock market debut as retail investors flocked to South Korea’s largest initial public offering in three years.

Big Hit’s shares surged by as much as 160 per cent from their IPO price to Won351,000 ($307) in early trading in Seoul on Thursday, pushing the company’s market value to Won9.6tn. The stock later pared some of those gains to trade about 120 per cent higher.

The high-profile listing came as the South Korean boy band achieved their second number one on Billboard’s main singles chart this week with the hit song “Savage Love”. The group’s first English language release, “Dynamite”, last month became the first South Korean song to top the US Billboard Hot 100, which ranks music releases based on sales and radio air time.

Nearly 1m viewers from 191 countries watched a two-day, BTS live-streamed concert in Seoul last weekend, according to Big Hit, with the coronavirus having forced the act to cancel in-person performances.

Big Hit’s IPO last month was heavily oversubscribed by both institutional and retail investors, spearheaded by a huge global fan base for the world’s biggest boy band in terms of revenue generated. Mom and pop investors made bids of more than Won58tn for shares as legions of BTS fans, nicknamed the “Army”, took part in the IPO in a show of loyalty.

However, analysts said gains for Big Hit’s share price could be capped by their high valuations. The stock trades at 60-70 times its projected earnings for 2021, compared with between 22 and 45 times for rival South Korean entertainment groups and just six times for Samsung Electronics, the country’s biggest company.

“The global influence of BTS was vindicated by the IPO’s popularity but investors are keen to take profits as the stock price seems to have overshot its fundamentals,” said Lee Jin-man, an analyst at SK Securities.

The listing has made Big Hit’s founder and biggest shareholder, Bang Si-hyuk, a billionaire and the seven members of BTS multimillionaires. Mr Bang, who owns 43 per cent of the group, founded Big Hit in 2005 after a stint as a music producer at JYP Entertainment, one of South Korea’s three biggest record labels.

The company struggled to stay afloat in its first few years before registering its first local hit, “Without a Heart” by 8Eight, in 2009. BTS, who debuted in 2013, gained global attention for their online presence on YouTube and social media. The company has diversified its revenue streams, including by distributing BTS content and selling merchandise through its Weverse platform.

Big Hit relies heavily on BTS, who generated nearly 90 per cent of its first-half revenue. Concerns over mandatory conscription of the group’s members to South Korea’s military are easing as Seoul plans to allow globally recognised pop artists to postpone their service, reasoning they contribute to raising the country’s standing abroad.



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Spac boom under threat as deal funding dries up

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A crucial source of funding for blank-cheque company deals is drying up, pointing to a slowdown for one of Wall Street’s hottest products after a record-breaking quarter. 

Advisers to special purpose acquisition companies, which float on the stock market and then go hunting for a company to buy, say they are struggling to find so-called Pipe financing to complete their planned acquisitions. Pipe is short for private investment in public equity.

Institutional investors such as Fidelity and Wellington Management have ploughed billions of dollars into Pipe deals since the Spac boom emerged last year, providing a route to the public markets for businesses ranging from established software and entertainment companies to speculative developers of flying taxis and electric vehicle technology. 

But people involved in arranging the deals say Pipe investors are overwhelmed by the sheer volume of transactions and put off by rising valuations. 

“There is a lot of indigestion,” said one senior bank executive. “The pendulum has swung to where if you’re in the market with a Pipe right now, it’s going to be really hard and painful. A Spac goes back into the ocean if you can’t get a Pipe done.”

Spacs raise money when they first list on the stock market but they typically require more capital to fund their acquisition. Large institutional investors also act as a form of validation of the target company’s business prospects and its valuation.

There have been 117 deals announced this year, but the growing backlog in Pipes could prove to be a big roadblock for the 497 blank-cheque companies that are still looking for a deal, according to Refinitiv data.

Only about 25 per cent of Spacs listed since 2019 have completed deals so far. Sponsors typically have two years to complete a merger, otherwise they have to return the capital they raised to investors.

Several market participants said the slowdown would lead to a “flight to quality” and put downward pressure on the valuations of acquisition targets, which have skyrocketed in recent months.

Almost all of the executives the Financial Times interviewed said they were seeing Spac deals recut to offer more favourable terms to Pipe investors. One said: “It’s called the buy side for a reason.” 

Because Pipe investments are considered illiquid — the money is tied up at least until the deal closes and there may be a lock-up period after that — investors can usually get favourable terms. They can see the deal before it has been announced to the public and are almost always able to buy in at the Spac listing price of $10.

But earlier this year, Pipe investors were clamouring to get in on Spac deals. The group of institutions that backed Churchill Capital IV’s acquisition of electric carmaker Lucid paid a 50 per cent premium to the Spac listing price to get a stake, almost unheard of at the time.

The recent reversal has Pipe investors negotiating lower valuations for businesses, giving them larger stakes for the same amount of money, and better pricing terms.

“There’s only so much illiquid exposure investors are going to want to take,” said another bank executive who has worked on numerous Spac deals.

The Pipe slowdown is bad news for banks, which are unable to collect on advisory fees if they cannot sell a deal to investors.

It is also starting to affect the pipeline of Spac launches, lawyers and bankers said. In the first seven days of this month, only four blank cheque companies have gone public. That compares with 41 during the first week of March and 28 in February, Refinitiv data shows. 

“Where we had been at a crazy, mad, rush pace in January and February, we’re kind of at a standstill right now on the IPO side,” said Ari Edelman, partner in Reed Smith’s corporate practice.

For those that already went public and are looking for a target, he added, “the hope is this is just a bump in the road. And then ultimately the deal gets done.”



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UK-backed vaccine maker warns of export restrictions in IPO filing

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Valneva, the French Covid-19 vaccine maker backed by the UK government, has filed for a US initial public offering seeking to take advantage of investor appetite for biotechnology during the pandemic. 

The Paris-listed company, with a market cap of more than €1bn, filed to raise $100m in American Depositary Shares, the day after Vaccitech, the Oxford spinout that owns the platform behind the AstraZeneca vaccine, published its filing

Valneva has a deal worth up to €1.4bn to supply Covid-19 vaccines to the UK, manufacturing the doses in a Scottish factory expanded with government funds. The UK has already agreed to buy 100m shots and has an option to purchase 90m more by 2025. Valneva has already received almost £100m from the government. 

But in its filing, Valneva warned that any restrictions on importing or exporting vaccines out of the EU could have a “substantial” risk to its operation. The vaccine is due to be manufactured in the UK but put into vials and packaged in the EU, it said. 

Shortfalls in supply of vaccines to the EU have led to tensions between the UK and the EU over importing shots and raw materials for the current approved jabs from Oxford/AstraZeneca and BioNTech/Pfizer.

Valneva’s filing comes after it announced positive early stage trial results for its Covid-19 earlier this week, planning to launch a later stage study this month and apply for a UK approval in the autumn.

The phase 1 and 2 study showed the shot elicited more antibodies in the participants receiving the highest dose than are usually seen in recovered Covid-19 patients, with over 90 per cent producing significant levels of antibodies. The jab also induced a response from another key part of the immune system, the T-cells. 

The vaccine, which uses a whole inactivated virus, a more traditional approach than the currently approved shots, could be used as a booster for the vaccinated or to tackle variants of the virus.

Valneva said even though it would be approved much later, it could have a competitive advantage against its rivals. 

“We believe that, if approved, our vaccine, as an inactivated virus vaccine, could offer benefits in terms of safety, cost, ease of manufacture and distribution compared to currently approved vaccines and could be adapted to offer protection against mutations of the virus,” it said in the filing. 

But it also said that it did not yet have the rights to use the strain of virus in the vaccine on the commercial market. It is in the process of negotiating a commercial agreement with the World Health Organisation and the Italian National Institute for Infectious Diseases. 

Valneva is also developing vaccines for Lyme Disease and chikungunya, a virus transmitted by mosquitoes. Total revenue was €110m in 2020, down from €126m in 2019, as sales of its travel vaccines were hit by restrictions on travel during the pandemic. 

It made a loss of €0.71 per share last year, after it had to make a €7.4m writedown, partly because of the limited shelf life of the products. Valneva also had to renegotiate a debt financing agreement last year as it was at risk of not meeting the minimum revenue covenant.



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Vaccitech warns of blood clot risk in IPO filing

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Vaccitech, the start-up that owns the technology behind the AstraZeneca vaccine, has warned that concerns about the rare blood clotting side-effect could hit royalties and affect the reputation of products in its pipeline. 

The Oxford university spinout on Friday published its prospectus for an initial public offering of at least $100m on Nasdaq, at the end of the week in which the UK and several EU countries recommended against giving the vaccine to younger people. 

The filing revealed how much the start-up stands to receive from vaccine sales. If and when AstraZeneca starts selling the shot for a profit after the pandemic — which according to their contract could be as early as July 2021 — Oxford will give about a quarter of the royalties it receives from the vaccine to Vaccitech, approximately 1.4 per cent of total net sales.

The company received a one-off payment of $2.5m when it transferred the technology behind the Oxford/AstraZeneca vaccine last year. 

Vaccitech is developing vaccines for other infectious diseases, including the virus behind shingles and Mers, another coronavirus, as well as using the same vector technology in treatments for cancer and chronic hepatitis. 

The pandemic has helped the company prove its technology works in millions of people, when many biotechs go public with little or no data from clinical studies. The rapid development and manufacturing of the AstraZeneca vaccine has also helped prove that Vaccitech’s technology can be scaled speedily. 

But while the Oxford/AstraZeneca vaccine, known as AZD1222, has been shown to be safe and effective, recent concerns about a very rare side-effect are now weighing on public perception of the shot. 

“There can be no assurance that the vaccine is not associated with an increase in the overall risk of thromboembolic events,” the company wrote in the filing. 

Vaccitech also warned that studies showing the AstraZeneca vaccine was less effective against the variant first identified in South Africa could impact sales.

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“Any association of AZD1222 with adverse events, or the perception of such association, or any findings that AZD1222 is less effective against certain variants of Covid-19, may reduce sales of AZD1222 and therefore the potential payments that we may receive from net sales of the vaccine, and may otherwise adversely impact the development of, and our ability to commercialise, any of our product candidates,” it said. 

Vaccitech’s decision to list in New York is a disappointment for the UK, which is hoping to lure more investment in life sciences. The UK Treasury has a stake in the company, according to people close to the situation. 

The largest investor is Oxford Sciences Innovation, an early stage venture capital firm focused on commercialising intellectual property from the university, with a 29 per cent stake before the offering. Other large shareholders include insurer Prudential, with a 13 per cent stake, and entities affiliated with Google Ventures, which hold 6 per cent. 



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