[INTERVIEW] 'Growing default risk derails IPO plans'

Oasis CEO Ahn Joon-hyung responds to questions during a recent interview at the company's office in Gwanghwamun, downtown Seoul. Oasis is the country's only e-grocery delivery platform operator that makes a profit. Korea Times photo by Choi Won-suk

Oasis CEO denies impact from SVB fallout, eyes benefits of core strength-centric development

By Kim Yoo-chul

When South Korea's e-grocery delivery company Oasis Corp., decided to withdraw its much-anticipated initial public offering (IPO) because of a valuation mismatch between what the firm was seeking and what investors were willing to pay, the company said its second IPO attempt will come only after determining the optimal timing from a financial point of view.

Despite Oasis generating a profit, investors remained doubtful if it is profitable in the medium- to long-term. This was cited as a core reason that led to the failure of the company to reach its 1.2 trillion won IPO valuation target.

Investors participating in a demand forecasting session presented an IPO price band of around the mid-22,000 won per share, far below the company's expectation for the IPO price band to be between 30,500 won and 39,500 won, said local investment banking sources. Because high-profile IPO deals from SK Shieldus, Hyundai Engineering, One Store, SSG.com, CJ Olive Young and Kurly had been shelved mostly due to valuation mismatches between companies' desires and investors' valuations, Oasis' IPO plan had received a lot of investor attention.

South Korea has not succeeded in producing an IPO larger than 100 billion won since W-Scope Chungju Plant's last year at close to 350 billion won.

An employee prepares online grocery orders in the storage area of Czech online grocer Rohlik Group in Prague, Czech Republic, Feb. 1, 2023. Reuters-Yonhap

Speaking to The Korea Times, Oasis CEO Ahn Joon-hyung said the company's IPO withdrawal was a reflection of investors' concerns over an increase in default risk amid rising interest rates and general inflation, both of which have been spurring a repricing of equity assets globally since 2022. Investors in equities, especially high-growth sectors, have substantially sold off from earlier highs since the COVID recovery began, with valuations declining by at least 20 to 75 percent in many IPO cases.

"Aggressive monetary-tightening policies by advanced economies was still sucking out easy money from the banking system. Plus, as growing default risk is affecting equity valuation, which has attracted investor scrutiny, it's getting tougher and tougher for IPO candidates to justify higher valuations," Ahn responded during a recent interview at Oasis' office in Gwanghwamun, downtown Seoul.

The company chief executive said while the IPO window will not remain closed forever, he will use this time to advance the company's next prospectuses for its offerings to account for new realities because the prime focus of the IPO market is certainly profitability- and valuation-focused.

Oasis is mainly backed by a local private equity fund (PEF), Unison Capital Partners, and a venture capitalist, Korea Investment Partners, which invested in Oasis in 2020 with a valuation of 140 billion won.

Oasis, the country's only profit-making e-grocery delivery platform operator, seems to have opted for a wait-and-see approach when it comes to its IPO retry rather than pushing forward with the offerings with a valuation repricing. This has meant that only companies that are supported by solid finance and revenue streams will go public, successfully.

"It's too early to say about reigniting our second IPO attempt. But it's unlikely for Oasis' renewed paths to IPO to happen this year because we have to focus more on profitability and shore up investor confidence in us. Oasis is on track to implement various cost-cutting measures and being transparent with the company-wide attempts to lower cash burn," according to the CEO. Oasis is said to have reported 7.7 billion operating profit for the first nine months of last year.

Profit margins in the offline grocery business are notoriously thin. Managing the economics of an e-grocery delivery platform is a detailed and delicate balancing act. While the guaranteed next-day delivery can be profitable, making the equation work for same-day delivery is challenging due to considerations such as packaging and expected speed of service.

A major problem for the company is the difference between averaged order sizes and fulfillment costs, both of which rely on each firm's target business and value proposition. The Oasis chief executive is well aware of this and added the company is trying to cut costs by packing all customers' delivery items into a single box based on product categories.

"Because profit margins in the e-grocery delivery business are really thin, we have to pursue operational excellence, put more emphasis on the density of demand and personalization in the customer experience. Oasis does not want to be seen as following business strategies as per Kurly because Kurly aims to evolve as an e-grocery platform operator that sells a vast range of products in different categories. However, Oasis aims to set our value proposition as the country's most trusted e-grocery platform operator that mainly handles the sale of qualified organic foods," Ahn responded adding Oasis is taking its optimization a step further by automating parts of the packaging process.

This illustration released by Instacart depicts the grocery delivery company's app which can integrate ChatGPT to answer customers' food questions. AP-Yonhap

No big impact from SVB fallout while awaiting overseas funding

Because Oasis is financially backed by South Korean PEFs and local venture capitalists, the company is positioned to avoid ripple effects from the Silicon Valley Bank (SVB) fallout.

The chief executive repeatedly stressed that he does not have much ambition in terms of helping the company see a meteoric corporate expansion. But he said that if Oasis wins back more funding from prominent third-party investors, this will help the platform operators boost the company's core competencies.

Common thoughts are that despite a massive capital influx in the e-grocery delivery industry, the industry itself will remain a challenging segment to crack. After governments' eased restrictions amid post-COVID recovery and toughened funding environments amid higher interest rates and tepid economic growth, the level of enthusiasm in this sector was not as high as it was at its peak before the pandemic.

Plus, consumers' shift towards offline shopping amid the relaxation of social distancing restrictions is reinforcing the challenges the already-crowded sector faces.

But Ahn expects the country's e-grocery delivery industry will rise further. He remained positive that Oasis will become one of the beneficiaries of the sector growth as it has greater exposure to daily essentials, most of which are related to its core strengths.

"Revenue from the online business is consistently growing. Given our value proposition to differentiate ourselves in the sector we are involved in, which is very competitive, Oasis is ideally positioned to increase the number of paid-membership users," the chief executive said. Oasis currently has 1.3 million paid-membership clients.

The COVID-19 pandemic not only dramatically increased the amount South Korean consumers spend online, but also shifted the way in which South Koreans do their grocery shopping. Grocery shopping has been the key category that saw the biggest transition in shopping habits with large numbers of general consumers who had never purchased groceries online before the pandemic making it a regular habit.

Regarding the necessity for the company to win back extra funding, Ahn said, "While our net cash reserves are quite sufficient in terms of addressing any short-term business challenges, yes, Oasis hopes to be backed by additional investors who can share our corporate growth strategies but in the long-term." Ahn went on to say he is not considering selling the company any time soon.