If you lose 1,000 won, you will be kicked out... What is the company's survival strategy amid all-round delisting pressure?

On the 12th of last month, the Financial Services Commission and the Korea Exchange announced a delisting reform plan to quickly and strictly eliminate insolvent companies. According to the exchange's simulation, the number of companies subject to KOSDAQ delisting this year is expected to increase significantly from around 50 companies originally expected to around 150 companies. As financial authorities' efforts to improve the market structure become fiercer, it is time for listed companies to face the impact this reform plan will have on their future survival and seek survival strategies.

The most noteworthy change is the new requirement for delisting of 'coin stocks (stock price less than 1,000 won)' that will be established in July. If the stock price falls below 1,000 won for 30 consecutive trading days, it is first designated as a managed stock. The problem comes after that. If the price remains below 1,000 won for 45 consecutive trading days within 90 trading days after designation as a managed stock, it will be subject to final delisting review. This suggests that even if a company is operating normally, it can be kicked out of the market at any time if it neglects stock price management.

Outward evaluation standards also become harsher. Starting in July of this year, the market capitalization standard for KOSDAQ-listed companies will be raised from 15 billion won to 20 billion won, and it is scheduled to be significantly strengthened to 30 billion won in January next year. What is more critical is that the ‘maximum improvement period’ given to a company in the event of delisting is shortened from 1.5 years to 1 year. Even the physical golden time during which a company at risk of trading suspension can normalize its management has been greatly reduced.

The standards for internal soundness and compliance have also become stricter. Previously, only complete capital erosion as of the end of the fiscal year was a requirement for delisting, but in the future, complete capital erosion on a 'semi-annual basis' will also be newly added as a substantive review requirement. The standards for expulsion for violations of public disclosure have also been significantly strengthened. Previously, in order to be eligible for listing eligibility, a company had to accumulate 15 penalty points over the past year, but now, if it accumulates only 10 points, it will be immediately put on the review board. Even a single serious and intentional violation can result in immediate expulsion. This is why detailed risk management by finance departments and public disclosure officers has become more important than ever.

In response to strengthening regulations across all fronts, companies with low stock prices are considering stock mergers to increase unit prices. However, unreasonable mergers without improving fundamentals can actually be toxic, and if the stock price does not reach par value even after the merger, it is still subject to exit requirements. In the end, it is impossible to avoid the tight network of exchanges with tricks or short-term stopgap measures.

Above all, the key to maintaining listing is ‘preemptive risk management.’ Available financial resources must be inspected in line with the changed requirements, and the internal control system must be thoroughly reorganized to prevent omission of disclosure. Developing a detailed 'management improvement plan' that can logically persuade the exchange and following an objective explanation process is the most certain survival solution for listed companies to survive in this unprecedented wind of exits.
 

Reporter Lee Dong-oh (canon35@mt.co.kr)

[View full article]
If you lose 1,000 won, you will be kicked out... What is the company's survival strategy amid all-round delisting pressure? (Shortcut)