This article was displayed on the ChosunBiz MoneyMove (MM) site at 8:29 a.m. on Aug. 11, 2026.
Small-cap stocks that had been pushing to sell management control to avoid delisting accepted a notice of designation as issues to be placed under watch, even as there was no progress in their sale efforts. Concerns are growing that the likelihood of deals being struck will fall further because, once designated for watch, mergers and acquisitions (M&A) via sales of existing shares are effectively blocked.
According to the Korea Exchange (KRX) and the Financial Supervisory Service's Data Analysis, Retrieval and Transfer System (DART) on the 11th, since July 1, disclosures warning of possible designation for watch due to market capitalization and share price below 1,000 won (penny stock requirement) totaled 94, excluding special purpose acquisition companies (SPACs). Excluding overlaps between market cap and penny stock requirements, 12 in the KOSPI market and 78 in the KOSDAQ market have been warned of watch designation or have been designated as issues under watch.
The Financial Services Commission in February announced a "delisting reform plan for the swift and stringent exit of insolvent corporations" and said it would bring forward, to July, the implementation of delisting criteria it had planned to introduce. The core is to introduce in July the market capitalization thresholds—300 billion won for KOSPI and 200 billion won for KOSDAQ—that had been set to take effect in January next year, and to establish penny stock exit requirements. Under this, listed companies that fail to meet the listing maintenance criteria for 25 trading days are selected as issues at risk of being designated for watch, and if they fail to meet the criteria within the next five trading days, they are placed under watch.
The large-scale wave of watch designations is expected to materialize this week. On the 5th of last month, which marked 25 trading days since July 1, when tougher delisting standards were implemented early, 43 companies simultaneously issued warnings of possible watch designation. If these corporations fail to meet listing maintenance criteria within this week, they will be designated under watch as is. After designation, if certain requirements are not met, they are immediately classified as subject to delisting.
For these corporations, once placed under watch, M&A becomes much more difficult. That is because sales of existing shares held by the largest shareholders are effectively blocked. Under current listing rules, selling the largest shareholder's equity while designated under watch is grounds for a substantive eligibility review for listing. Since the sale proceeds do not flow into the company and instead go to the largest shareholder, the measure is intended to prevent the shell from being used for a backdoor listing.
Some corporations that recently issued warnings of possible watch designation are pushing to sell management control to maintain their listing, but most have failed to find buyers, prolonging the sale. As delisting rules have tightened, a flood of supply has created a buyer's market.
A source in the capital markets industry said, "With several listed-company assets coming to market recently, buyers are gaining the upper hand in negotiations," and added, "Some sellers are trying to close transactions even by cutting prices."
The industry expects the buyer's advantage to become even more pronounced in the small-cap M&A market due to this large-scale wave of watch designations. Because only third-party allotment paid-in capital increases can be used for transaction in watch-designated issues, a buyer-friendly environment forms. Without purchasing the existing largest shareholder's shares, the volume of cases where management control can be acquired inexpensively through only a third-party allotment paid-in capital increase is increasing.
An industry source said, "From a buyer's perspective, acquiring management control through a third-party allotment paid-in capital increase is preferred because the purchase funds flow into the company and can be used directly for new businesses," adding, "In this case, the existing largest shareholder must enter into a put option contract with the acquirer or exit via on-exchange sales, which makes it that much harder for the existing largest shareholder to complete M&A."