Shares in Krafton Inc, the Tencent Holdings-backed South Korean company behind blockbuster video game "PlayerUnknown's Battlegrounds" (PUBG), fell as much as 20 per cent from their IPO price on their trading debut on Tuesday.
Analysts attributed the tumble to an expensive valuation and China regulation risks, with gaming companies facing uncertain prospects after China regulators have come down hard on a number of industries, upending norms with new guidance and rules.
Krafton is the first large South Korean listing whose shares have failed to rise above the initial public offering (IPO) price on debut since a pickup in floatations last year, reports Reuters.
The stock was last at 444,000 won in morning trade, down 11 per cent from the IPO price of 498,000 won, valuing the company at about $18.9 billion.
Listings such as HYBE, formerly known as Big Hit and the manager of K-Pop group BTS, and battery material maker SK IE Technology Co Ltd (SKIET) had muted debuts, but closed above their IPO prices on the first day of trade.
Krafton derived 87 per cent of its revenue from Asia, excluding South Korea, in the January-March quarter, a large portion of which is estimated by analysts to come from sales in China handled by Tencent.
Krafton earns fees from a profit distribution scheme for providing technology services for "Peacekeeper Elite", a game similar to "PUBG Mobile" that is usually among China's top two grossing games, it said in an IPO filing.
"About 70 per cent (of sales) appear to be from Tencent," LightStream Research analyst Mio Kato told Reuters.
"China has already made noises about (Tencent's) 'Honor of Kings' ... If they also request changes for 'Peacekeeper Elite' that would be a negative and could be a very large negative."
Shares in Tencent and global gaming companies with China exposure such as Activision Blizzard tumbled last week after the Economic Information Daily, which is affiliated with the official Xinhua Agency, called online gaming "spiritual opium".
Tencent quickly said it would further curb minors' access to its flagship video game "Honor of Kings".
Still, Krafton raised $3.75 billion in South Korea's second-largest IPO after Samsung Life Insurance's float in 2010, even after the firm cut its fund-raising target by a quarter after regulators ordered it to revise its filings.
Some 65 per cent of the IPO proceeds will go to Krafton, which plans to use the bulk of the funds to acquire other gaming companies. The remainder went to shareholders cashing out their investments.
More large offerings are in the pipeline in what is shaping up to be a bumper year for South Korean stock market floats, including EV battery maker LG Energy Solution and payments firm Kakao Pay, which is backed by China's Ant Financial.