South Korean Krafton plays successful game against China


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A cosplayer wears the helmet of a character from PlayerUnknown’s Battlegrounds video game, a survival shooter from South Korean developer Bluehole Studio Inc., while testing Tom Clancy’s Rainbow Six Siege from Ubisoft Montreal at Gamescom Cologne, in Germany Aug 23, 2017. REUTERS / Wolfgang Rattay

HONG KONG, July 9 (Reuters Breakingviews) – Krafton (259960.KS) differentiates between being shrewd or half too smart with his game in China. The South Korean video game developer wants to go public at a valuation of $ 21 billion, backed by the popularity of its “PlayerUnknown’s Battlegrounds” franchise. Geopolitical tensions between Seoul and Beijing have hampered access to its largest market through sales. Krafton and top funder Tencent (0700.HK) have come up with a workaround, but too much depends on it.

PUBG is a survival game where up to 100 players shoot at it to become the last person standing. The mobile version, which has racked up a billion cumulative downloads since its launch three years ago, had 51 million daily gamers in the first quarter. Thanks to the pandemic that boosted game sales, Krafton’s net profit doubled last year to around $ 485 million.

At the top of the price bracket, the company would start at less than 20 times projected earnings for next year, according to a person familiar with the deal. That’s less than rivals NetMarble (251270.KS) and Kakao Games (293490.KQ). The company’s reliance on PUBG may be a factor. But founder and chairman Chang Byung-gyu has Disney-style (DIS.N) ambitions for the game. Along with new spinoff titles, Krafton plans to develop movies, TV shows and more based on the franchise.

His fortune is tied to the People’s Republic, the world’s largest video game market. A political row in 2017 over a US anti-missile system sparked economic retaliation from Beijing, including a freeze on South Korean video game approvals for more than three years. Despite this, Krafton generated nearly $ 1 billion in revenue from his Chinese partner and donor last year. This represents almost 70% of Krafton’s annual sales.

The company achieved this with an elegant maneuver. Tencent, at $ 652 billion, which owns 15% of Krafton, has developed “Peacekeeper Elite,” a less violent version of the game, to appease regulators in Beijing. In return, the Chinese giant grants Krafton a cut in revenue, calling it a tech service fee. The game is currently one of the most downloaded mobile titles in China.

The risk is that Beijing decides that the two versions are in fact the same game. Tensions have eased, but future political pushes between the two countries would force Krafton and his investors to seek real peacekeepers.

To pursue @mak_robyn on Twitter

NEWS CONTEXT

– South Korean video game developer Krafton plans to raise up to 4.3 trillion won ($ 3.8 billion) in an initial public offering, under revised terms released on July 1.

– The company sells 8.65 million primary and secondary shares, or 17.7% of the total share capital, at 400,000 won for 498,000 won each. At the top of the price range, the market cap would be over 24 trillion won.

– Krafton previously planned to sell up to 10 million shares with a price range of 458,000 won to 557,000 won. On June 25, South Korea’s financial monitoring service ordered the company to revise its IPO registration statement.

– The company is best known for the worldwide hit shooter PlayerUnknown’s Battlegrounds, or PUBG.

Editing by Antony Currie and Katrina Hamlin

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