Starting in November, corporations that fall in the bottom 25% by price-to-book ratio (PBR) within each industry on the KOSPI market and the bottom 10% on the KOSDAQ market will be published as "low-PBR corporations." The aim is to disclose a list of corporations that have made insufficient efforts to enhance shareholder value despite low PBRs, prompting voluntary improvements in corporate value.
The Financial Services Commission and the Korea Exchange (KRX) on the 29th released detailed standards for the low-PBR corporation disclosure system. PBR refers to the ratio of a corporation's market capitalization to its net worth. The lower the PBR, the more it suggests the corporation is undervalued in the market relative to the value of its assets.
The subjects of disclosure are the bottom 25% by cumulative three-year industry PBR on the KOSPI market and the bottom 10% on the KOSDAQ market. To account for characteristics of sectors with large asset holdings, such as heavy industries and finance, the calculation divides industries into 11 groups. Given ongoing restructuring on the KOSDAQ market, a looser standard than KOSPI was applied.
If a plan to enhance corporate value that includes a low-PBR improvement plan is disclosed, the corporation is exempt from publication for one year. However, corporations that fall in the KOSPI bottom 25% or KOSDAQ bottom 10% for a cumulative six years by market and industry are not eligible for the exemption.
Low-PBR corporations will be disclosed on the first trading day of May and Nov. each year via the Korea Exchange (KRX) disclosure website. In addition, a "low PBR" tag will appear next to stock names on securities firms' home trading systems (HTS) and mobile trading systems (MTS) so investors can easily identify them.
The Financial Services Commission (FSC) will issue advance notice of revisions to exchange rules and detailed regulations starting on Aug. 5, collect opinions through the 24th, finalize them via resolutions by the Securities and Futures Commission and the Financial Services Commission in Sept., and publish the low-PBR corporations on Nov. 2.