This article was published on Aug. 5, 2025, at 9:12 a.m. on the ChosunBiz MoneyMove (MM) site.
The Korea Exchange recently decided to delist Daedong Electronics from the KOSDAQ market. The company failed to receive a proper audit opinion on its financial statements for two consecutive years, and the exchange deemed the improvement plan submitted by the company insufficient.
However, some have raised suspicions regarding the reasons for not receiving a proper audit opinion, noting that the largest shareholder's stake, including treasury stock, exceeds 90%, leading to allegations that the company might be intentionally pursuing delisting. It is alleged that instead of publicly buying out the stakes of small shareholders at fair value, the company chose to be 'delisted' by the exchange.
The Korea Exchange decided to delist Daedong Electronics on July 31. The company faced substantive review for delisting after failing to obtain a proper audit opinion for two consecutive years. The external auditor, Samduk Accounting Corporation, provided a 'limited' opinion, stating, 'The company has booked 30.8 billion won in related company stocks, but has not been able to obtain reliable audit evidence to perform appropriate audit procedures.' In short, the company did not provide sufficient information.
Some small shareholders claim that the company intentionally omitted accounting data to pursue delisting. Typically, companies that are delisted due to improper audit opinions are those with high levels of deficits and liabilities, but Daedong Electronics is a profitable company with relatively sufficient assets.
Another reason for suspicion regarding the company's alleged intentional delisting is its somewhat abnormal equity structure. The largest shareholders include the Singapore corporation 'DAIMEI SHOUJI' and the founder's son, Kang Jung-woo, with the stakes of the largest shareholders and related parties reaching 60.4%. DAIMEI SHOUJI was originally an affiliate of Daedong Electronics, but approximately 20 years ago, the company sold its shares in DAIMEI SHOUJI, ending their relationship, with Kang Jung-myung transferring his shares to them.
Daedong Electronics is also a company with a high proportion of treasury stock. The company holds 33.36% of its own shares. The combined equity held by treasury stock and the owner's family amounts to 93%.
In particular, the company bought back a significant amount of its treasury stock last year. At that time, the company announced a plan to buy back its shares to enhance shareholder value. Interestingly, if the company had purchased the entire amount it planned at that time, the total stock held by the largest shareholders and treasury stock would have met the 95% threshold for voluntary delisting. However, due to a surge in stock prices after the announcement, the company was unable to purchase the targeted equity.
According to current laws, for a company to apply for voluntary delisting, the largest shareholders must collectively own more than 95% of the company's stock. Companies pursuing voluntary delisting typically gather outstanding shares through public buyouts. This process requires significant funds, and even if they gather over 95% of the shares, it does not automatically lead to delisting. The Korea Exchange reviews whether the company sufficiently considers minority shareholders when a delisting application is submitted.
The suspicion some small shareholders have about the company intentionally avoiding proper external audits lies in this aspect. The rationale is that if a company does not receive a legitimate audit opinion, it can significantly reduce costs during the delisting process.
Some small shareholders assert, 'The reason the company is pursuing intentional delisting is believed to be related to succession,' adding, 'The company was already ordered by a court in 2013 to compensate individual shareholders 11.4 billion won for selling equity at a low price during the succession process.'
However, the company has rebutted these claims, stating, 'It is not true that we did not provide sufficient materials to external auditors or intended delisting in advance,' and added, 'We plan to file for a suspension of the Korea Exchange's delisting decision.'
Meanwhile, there are limited means to prevent or penalize companies pursuing intentional delisting. Particularly, in light of the recent crackdown on companies with fraudulent accounting to revitalize the stock market, caution is required due to potential abuse of delisting cases.