The Korean investment house that missed the SpaceX IPO

Mirai Asset Securities is the largest investment banking and brokerage firm by market capitalization in South Korea, with a market capitalization of 24.872 trillion Korean Won (approximately $17-18 billion).

The incident left Mirai as the only investment company among the 23 investment houses in the country that was not awarded shares at all. This failure highlights how even a seemingly routine communication shortfall can lead to dire consequences for financial entities managing billions of dollars in transactions.

At the center of the affair is a misunderstanding regarding the manner of submitting the final orders for the issuance. According to the report in Bloomberg, the investment house mistakenly referred to the early stage of “expression of interest” as the submission of the actual binding orders. As a result of this technical error, requests from Korean investors worth more than $1.1 billion were never recorded in the offering books.

The failure of “Project Apex”

The misunderstanding occurred during an internal phase dubbed “Project Apex”. In mid-May, a few weeks before the process of the official demand submission phase began, the leading banks of the IPO distributed an email in which they asked the financial brokerage companies to collect initial indications of demand from investors. This data was concentrated in a virtual information room, as is customary in huge transactions of this type.

At Mirai they were sure that they were making the real order for their customers. But from the point of view of the Wall Street investment banks, it was a non-binding expression of interest. The real demand submission phase only opens in June through a separate email, as is customary in huge IPOs. The meaning was fatal for the Korean investment house, the banks in New York recorded in the system that Mirai submitted “zero orders”, and assigned her zero shares accordingly.

This media blunder appears to be one of the few blemishes on SpaceX’s successful fundraising. The move, considered one of the largest in history, was widely praised by investors for the fact that its management flowed smoothly, despite its high complexity and tight schedule. The banks leading the recruitment, Goldman Sachs, Morgan Stanley and Citigroup, as well as the Mirai company, refused to respond to the news.

“We bow our heads and ask for forgiveness for delivering such unfortunate and disappointing news to our customers, who participated in SpaceX’s recruitment with great interest and great expectation,” wrote Mirai’s vice-chairmen, Kim Mi-seop and Har Sun-ho, in a message sent to customers on June 15. The two pledged to conduct a thorough investigation of the case and take all necessary steps to “restore investor confidence.”

The Financial Supervisory Authority in Seoul had earlier launched an investigation to determine whether the investors registered for the offering met the threshold conditions, but the regulatory procedure has now been expanded in order to examine in depth how the investment house failed to guarantee the allocation of the shares.

Trading data shows that the market reacted with a strong shock to the default: since the date of SpaceX’s capital raising, Mirai Asset Securities shares have fallen by 18.2%. This sharp drop clearly reflects the severe damage to public trust and the reputation of the largest investment house in the country, which was left out of this year’s deal.