As financial authorities significantly tightened KOSDAQ delisting standards, an emergency has hit Hyungji I&C, a KOSDAQ-listed company. In March, it even pulled the 1-for-10 reverse stock split card to avoid the so-called "penny stock" delisting threshold for shares under 1,000 won, but the stock plunged again afterward, leaving the company scrambling to meet the market capitalization requirement. The stock decline also sharply shrank the amount it can raise through a paid-in capital increase.
On the 5th, Hyungji I&C shares closed at 2,300 won on the KOSDAQ market, down 8% (200 won) from the previous day. The stock is down 42% from immediately after the reverse split (3,955 won).
Hyungji I&C carried out the reverse split as a last-ditch move to avoid the penny stock delisting standard that takes effect in July. By forcibly reducing the number of outstanding shares through a reverse split, it can lift the book price and shed the penny stock label.
Hyungji I&C's stock traded in the 900–400 won range from early this year until before the split. In March, Hyungji I&C executed a 10-for-1 reverse split via a no-consideration consolidation, cutting capital from 21.481311 billion won to 2.148131 billion won and reducing the number of shares outstanding from 42,962,622 to 4,296,262.
The problem is that investor sentiment froze after the company announced a shareholder-allotted paid-in capital increase plan right after it artificially lifted the share price. A reverse split is typically taken as a sign of a worsened financial structure and is seen as a negative in the stock market.
As a result, Hyungji I&C dodged the immediate penny stock delisting trigger with the reverse split, but as the stock has slid since, some note that the risk of falling below the minimum market capitalization needed to remain listed has actually grown.
As financial authorities toughened KOSDAQ delisting standards, they also raised the market capitalization requirement to stay listed. Until early this year, only corporations with a market capitalization under 15 billion won met the delisting criteria, but starting July 1, the threshold expands to corporations under 20 billion won. If the market capitalization requirement is not met, the company is designated as an issue under management. If, within 90 trading days after that designation, it fails to recover market capitalization to at least the threshold and maintain it for 45 consecutive trading days, it is expelled from the market.
In Hyungji I&C's case, on the 7th of last month, the day trading resumed after the split, market capitalization was 17 billion won, but as the stock fell, market cap has been steadily declining. As of today, market capitalization stands at about 9.9 billion won. It has already been below 15 billion won for 14 consecutive trading days.
On top of that, the stock drop sharply lowered the first issue price for the shareholder-allotted paid-in capital increase from the original plan, significantly reducing the amount to be raised. On the 2nd, Hyungji I&C disclosed that the first issue price for the shareholder-allotted paid-in capital increase was set at 2,030 won per share. The initially expected issue price was 4,670 won, more than halved. Accordingly, the planned proceeds fell from 13.076 billion won to 5.684 billion won.
Accordingly, although the company had planned to use the proceeds for operating funds and debt repayment, the reduced amount led it to decide to use all funds for operating capital. The company said, "As the size of the capital increase has been reduced, we will reprioritize the existing debt repayment plan and use funds efficiently."
Regarding delisting concerns, a Hyungji I&C official said, "We are fully aware of the market's concerns," adding, "To strengthen our core competitiveness, we plan to focus on solidifying existing businesses, diversifying our business portfolio including the new brand Boldini set to launch in September, overseas expansion, and improving performance and corporate value."