After the financial authorities released a plan to "expel penny stocks," KOSDAQ-listed companies have rushed to approve reverse stock splits, but few have seen the benefits. In many cases, share prices fell after the split, and while the split lifted them out of "penny stock" status, most still faced delisting because they failed to meet the market capitalization requirement.
Under the revised listing rules, if a stock trades below 1,000 won for 30 consecutive sessions or its market capitalization falls short of the threshold (300 billion won for KOSPI, 200 billion won for KOSDAQ), it is designated as an issue under watch. If it fails to regain compliance for 45 or more of the following 90 trading days, delisting procedures begin.
On Aug. 12, the 30th trading day after the system took effect on July 1, many stocks subject to the rule were designated as issues under watch. The 90-trading-day grace period ends around mid-October. As early as October, delistings are expected.
According to the securities industry on the 26th, the KOSDAQ-listed Heng Sheng Group(900270) completed a 1-for-5 reverse stock split and resumed share trading on the 25th. It conducted another split just five months after a 1-for-10 split in March.
The reference price after the split was set at 2,100 won, and the stock, which had been in the 400-won range, rose into the 2,700-won range on the 25th. It has shed its penny-stock status.
The problem is that even after two reverse splits, its market capitalization is only about 14 billion won, falling short of the 20 billion won required to maintain listing.
The company is conducting a rights offering of 20 billion won targeting the largest shareholder and others, but if the share price falls again, it could face the risk of delisting.
Heng Sheng Group is not the only listed company under threat of expulsion to pursue a reverse split. JMI(033050) will hold a shareholders meeting on the 18th of next month to put on the agenda a proposal to merge five common shares with a par value of 1,000 won each into one share with a par value of 5,000 won. Since May 14, its share price has remained below 1,000 won, leading to its designation as a penny stock under watch on the 12th.
Wooree Enterprise(037400), also designated as an issue under watch on the 12th due to penny-stock status, decided on a 1-for-5 reverse split, changing the par value per share from 500 won to 2,500 won. Wooree Enterprise shares have been suspended from trading since the 14th, with a change of listing scheduled for the 7th of next month.
The problem is that deciding on a reverse split alone makes it hard to meet the tougher listing requirements. Even if a company lifts its nominal share price by combining shares, most fail to satisfy listing conditions if they do not improve fundamental corporate value such as performance and financial structure, as investor sentiment worsens.
According to Hanwha Investment & Securities, of the 156 cases that listed new shares after reverse splits between Feb. 12 and July 15 this year, 130 cases (83.3%) saw their share prices fall as of July 15 compared with the day the post-split shares were listed.
Eom Su-jin, an analyst at Hanwha Investment & Securities, said, "If a company narrowly avoided being designated as an issue under watch through a reverse split, it should strengthen its fundamentals, viewing it as a valuable chance at recovery," and added, "Unless it shows visible changes in the near term—such as sales growth, improved profitability, and, if needed, business expansion via mergers and acquisitions (M&A)—it will face an even harsher market assessment."