The government has tapped the brakes by delaying by six months the additional tightening of KOSDAQ delisting criteria, but once the grace period ends, nearly twice as many listed companies as now are expected to fall within the scope of the exit thresholds. It already appears that more than 3 million small shareholders invested in issues that failed to meet the strengthened share price and market capitalization standards, with the valuation of their holdings nearing 8 trillion won.
According to data submitted by Democratic Party of Korea lawmaker Park Min-gyu, a member of the National Policy Committee, from the Korea Exchange (KRX), as of the 25th of last month, 238 listed companies had share prices below 1,000 won or market capitalizations that fell short of the listing-maintenance requirement.
Of these, 177 were KOSDAQ-listed companies. There were 117 corporations below the market cap threshold and 91 with share prices under 1,000 won; excluding overlaps, the total was 177. In the KOSPI market, 61 fell short, including 39 below the market cap bar and 30 below the share price criterion.
These corporations had 3,126,710 small shareholders. The KOSPI issues had 959,878 small shareholders, and KOSDAQ had 2,166,832. The valuation of shares they held came to 1.45 trillion won and 6.4001 trillion won, respectively, totaling 7.8501 trillion won.
The shareholder count can double-count investors who hold multiple issues, and delisting does not necessarily mean a total loss of stock value. Still, given that the tougher delisting criteria could affect millions of individual investors and assets worth trillions of won, the impact of the rule change is seen as significant.
The bigger variable is July next year. The Financial Services Commission and the Korea Exchange (KRX) raised the listing-maintenance market cap thresholds starting in July to 30 billion won for KOSPI and 20 billion won for KOSDAQ. The plan was to further increase them in January next year to 50 billion won and 30 billion won, respectively.
The government recently postponed the timing of the additional increase by six months to July next year, citing increased volatility in the KOSDAQ market. As a result, roughly 200 KOSDAQ-listed companies with current market caps of 20 billion to 30 billion won will avoid the additional criteria for the time being.
However, once the grace period ends, the number of corporations tripping the exit criteria is expected to jump. According to analysis by Park's office, if the strengthened standards take effect in July next year, 471 corporations would fall within range—114 on KOSPI and 357 on KOSDAQ—about twice the 238 corporations currently below the thresholds.
The recent trajectory of KOSDAQ share prices is also a burden. The KOSDAQ index plunged about 47% from 1,226.18 on Apr. 27 to 644.78 on Jul. 30. It rebounded to 813.50 on the 4th, but the gap from the year's high remains large. If the slide continues, more corporations could newly fall below the market cap threshold.
Under current rules, if the share price stays below 1,000 won for 30 consecutive trading days or the market cap falls short of the listing-maintenance threshold, the stock is designated as under administrative watch. If it fails to recover above the thresholds for 45 or more consecutive trading days within 90 trading days thereafter, delisting procedures begin. From Jul. 1, when the revised rules took effect, through the 4th of this month, 52 issues were designated under administrative watch for failing the share price or market cap thresholds.