Amid the financial authorities' position to strengthen the exit of 'marginal corporations' from the domestic stock market, there have been successive delistings of distressed corporations this year. The Korea Exchange decided on 14th to delist three subsidiaries of the E Group (formerly known as the Ewha Group) - EID, Ehwa Technologies Information, and ETRON - after allegations of embezzlement and breach of trust against the executives led to a suspension of their stock trading.
The Korea Exchange decided on 14th to proceed with the final delisting of EID, Ehwa Technologies Information, and ETRON. If the companies do not file for a stay, all three will be removed from the stock market after undergoing cleanup trading.
These listed companies had their trading suspended in May 2023 when prosecutors requested an arrest warrant for former chairman Kim Young-jeon of the E Group on charges of embezzlement and breach of trust. According to the regulations of the Korea Exchange, the scale of embezzlement or breach of trust that triggers the commencement of substantial review for qualification for listing is 'if the embezzlement or breach of trust amount exceeds 3% of the officer's equity or if the embezzlement or breach of trust amount is over 1 billion won.'
The E Group claims that the amount embezzled by former chairman Kim is below 1 billion won, the threshold for substantial review for listing eligibility, but it was revealed in the prosecution's indictment that the amount related to Kim's charges of embezzlement and breach of trust reaches 70 billion won.
The Korea Exchange began substantial review of these companies for listing due to the allegations of embezzlement and breach of trust by the executives. However, during the comprehensive examination of their management status for the review, it was determined that they were not suitable for maintaining their listing. An exchange official explained that "we looked into various aspects, such as the management transparency of the listed companies and whether they can continue operations as corporations, and concluded that maintaining their listing would not be meaningful." This implies that the qualitative evaluation by the exchange significantly influenced the decision to delist.
Recently, the financial authorities stated their position to enhance market soundness and boost investor confidence by expelling distressed and marginal corporations from the domestic stock market. To this end, the exchange has recently initiated strengthening delisting requirements, streamlining related procedures, and enhancing investor protection measures.
Jeong Eun-bo, chairperson of the Korea Exchange, noted at the New Year’s meeting that "once delisting occurs, cleanup trading stages take place until the final delisting is completed, and we cannot allow corporations that should be delisted to remain in the market, risking new investors becoming victims of unfair transactions," and added that "one should not equate a corporation's failure with delisting."
The decision to simultaneously delist the subsidiaries of the E Group seems to reflect this trend. According to the exchange, a total of six companies have had their delisting decided from January 1st to this date. Along with EID listed on the securities market, the following companies have been delisted from the KOSDAQ market: ▲Jokwang I.L.I. ▲DAEYU ▲Kanglim ▲ETRON ▲Ehwa Technologies Information.
This represents a significantly higher number of corporations being delisted compared to the same period last year. Only one company, BDI, which is listed on the KOSDAQ, was delisted from January 1st to February 17th last year. A financial investment industry official noted, "Recently, the Korea Exchange's decisions regarding delisting have become more decisive."
Meanwhile, the minority shareholder coalition of the Ewha Group announced its intention to respond, saying that the Korea Exchange also bears responsibility for the recent delisting decision. The minority shareholder coalition stated, "Due to the Korea Exchange's poor verification and lack of management responsibility, hundreds of thousands of individual investors have suffered," adding that "the core issue is that the Korea Exchange has made decisions to resume transactions without properly verifying the companies' false disclosures." They continued, "The shareholder coalition plans to pursue strong actions holding the Korea Exchange accountable and demanding institutional improvements."
Ehwa Technologies Information and ETRON announced that they applied for a suspension of the effect of the delisting decision at the Seoul Southern District Court on that day.