Warning lights are flashing for delisting among corporations that fall short of market capitalization and share price requirements, as financial authorities tighten the criteria for maintaining listings. With even corporations tripping newly introduced exit rules for penny stocks (share price under 1,000 won) in rapid succession, listed companies are facing urgent pressure.
According to the Financial Supervisory Service's electronic disclosure system on the 6th, a total of 63 corporations on the main board and the KOSDAQ received an "advance notice of possible designation as an administrative issue" the previous day. Sixteen on the main board and 47 on the KOSDAQ. The advance notice alerts investors in advance when a corporation fails for 25 consecutive trading days to meet the criteria for designation as an administrative issue, such as market capitalization or share price, and is disclosed by the Korea Exchange (KRX). If the criteria are missed for five more trading days, the corporation is designated an administrative issue.
The surge in corporations at risk of designation as administrative issues stems from tougher listing maintenance standards. The Financial Services Commission announced in Feb. a "delisting reform plan for swift and strict exit of insolvent corporations," and from last month began designating as administrative issues those on the main board with market capitalization under 30 billion won and those on the KOSDAQ under 20 billion won for 30 consecutive trading days. It also newly introduced a share price rule designating corporations as administrative issues if the closing price stays under 1,000 won for 30 consecutive trading days. If they fail to exceed the thresholds on 45 or more of 90 trading days thereafter, they proceed toward delisting.
On both the main board and the KOSDAQ, more corporations were caught by the share price rule than by the market capitalization rule. On the main board, 10 listed companies met the penny stock condition, outnumbering the seven corporations under 30 billion won in market capitalization. On the KOSDAQ, 39 corporations failed the share price requirement, three times the 12 corporations under 20 billion won in market capitalization.
More corporations fell under the penny stock rule than the market capitalization rule because of the different start times of the measures. The market capitalization rule has been in effect since Jan., designating as administrative issues those under 20 billion won on the main board and under 15 billion won on the KOSDAQ, so many corporations had already been filtered out. By contrast, the under-1,000-won share price rule was introduced for the first time last month, sweeping many at once into the pool at risk of administrative designation.
Since the penny stock rule was added, some listed companies have moved to lift share prices through reverse stock splits, but the effect has been limited without fundamental improvements in corporate value. For example, ChoA Pharmaceutical(034940), Kyungnam Pharm(053950) and Shaperon(378800) carried out 5-to-1 reverse splits to raise nominal share prices fivefold, but prices fell again after trading resumed.
Industry officials also cite July's market plunge as a reason for the rise in corporations at risk of administrative designation. As the KOSPI fell by nearly 40%, investor sentiment deteriorated sharply and small and mid-cap stocks declined in tandem. With the overall market weak, it was difficult to keep share prices and market capitalization above the listing maintenance thresholds.
A source in the securities industry said, "As investor sentiment deteriorated sharply in July, it became much harder to meet the listing maintenance standards," and added, "Because short-term share price support has limits, listed companies will ultimately need backing from earnings and improvements in corporate value to escape the risk of delisting."