The financial authorities have decided to strengthen the KOSPI delisting criteria regarding market capitalization (market cap) by up to 10 times for the first time in 16 years, causing a stir in the mid-sized and small business sectors.

By 2029, companies with a market cap of less than 500 million won and sales of less than 300 million won on the KOSPI (300 million won market cap and 100 million won in sales on the KOSDAQ) will be gradually expelled. Based on current criteria, most of the target corporations are concentrated among mid-sized and small businesses, which is expected to severely impact their financing, which is essential for investment.

On the 29th, ChosunBiz commissioned financial information provider FnGuide to compile a list of KOSPI listed companies failing to meet the standards of a market cap of 500 million won (based on the end of 2024) and sales of 300 million won (based on 2023), revealing a total of 86 companies are at risk of delisting. Among these, 43 are mid-sized corporations accounting for half of the total, and 40 are small businesses, reaching 46.5%. Large corporations (including affiliates) number only three.

In the case of mid-sized corporations, 42 out of 43 have been confirmed to be below the market cap criteria, with notable names including Hansol PNS, an IT affiliate of Hansol Group, and VIVIEN, a first-generation domestic lingerie company that has suffered operating losses for several years due to failure to effectively target younger consumers. The largest shareholder of VIVIEN is SSANGBANGWOOL Group, which recently saw its largest shareholder change to Kanglim from Nature Republic, a roadshop brand.

Additionally, recognizable corporations such as ENEX, Dong Won Fisheries, Dongyang Express, Dongil Steel, HANSAE MK, Monami, Hanchang, and Keyang Electric were also included.

Graphic = Jeong Seo-hee

These corporations are in a race against time to avoid delisting. Mid-sized corporation A, which appeared on the list of companies with insufficient market cap, noted, "Although our market cap fell due to losses in 2023, performance is improving, and we intend to enhance shareholder value through proactive investor relations (IR) activities, including plans for an expanded dividend policy and value-up initiatives (enhancing undervalued corporate worth)."

Currently, the delisting criteria are a market cap of less than 50 million won and sales below 50 million won on the KOSPI (40 million won market cap and 30 million won in sales on the KOSDAQ). The requirements for maintaining a listing have been excessively low, as there have been no delistings due to failures to meet market cap and sales criteria over the last 10 years. The government aims to support value enhancement through the removal of such corporations that diminish trust in the capital market.

The mid-sized and small business sectors are calling for supplementary measures, as funding sources could be cut off suddenly. A primary reason for corporations to go public is the ability to raise billions to trillions of won at low costs through the general public. This allows corporations to lower their liability ratios and increase their equity, improving their financial structure. Additionally, they can seek research and development, equipment investment, and market entry into new businesses.

Choo Mun-gap, head of the Economic Policy Division of the Korea Federation of Small and Medium Enterprises, noted, "If the direct financial market for corporations diminishes, reliance on bank financing will inevitably increase, which is very unfavorable for small businesses. Many of the target corporations have market values that do not even meet their cash holdings. A more refined policy alternative to screen out 'zombie corporations' is needed."

Park Yang-kyun, head of the Policy Division of the Korea Mid-sized Enterprise Association, stated, "Corporations need to actively consider mergers and acquisitions (M&A) or conduct IR activities to enhance corporate value, and while the association will make efforts to support necessary programs, it seems necessary to implement supplementary measures to prevent quality corporations from being delisted without proper evaluation of their future market value."

This atmosphere may also affect startups that are about to go public. If recovering funds through listing becomes difficult, the overall ecosystem, including early-stage startups, could be adversely affected. Consequently, there are calls for startups to actively seek exits through M&A.

Yoo Hyo-sang, director of the Unicorn Management and Economic Research Institute, stated, "About 100 new corporations are listed annually, bringing the total number of listed companies to 2,750 (combined KOSPI, KOSDAQ, and KONEX), with their combined market cap reaching 2,454 trillion won, which is less than half of Nvidia's market cap. Instead of engaging in meaningless listings that do not result in transactions, a shift in thinking to grow businesses through economies of scale via M&A is necessary."