Delisting Fears Mount as Korea Exchange Puts 36 Low-Priced, Small-Cap Stocks on Watchlist

Korea Exchange designates 36 stocks as watchlist items for share-price and market-cap breaches

30 newly added, while six existing watchlist names face additional grounds

South Korea’s tougher delisting rules for troubled companies have pushed a wave of low-priced and small-cap stocks onto a regulatory watchlist. Some companies are drawing up measures to avoid the designation, while brokerages say the crackdown could help improve the quality of the Kosdaq market.

The Korea Exchange designated 36 stocks as watchlist items on August 12 across the Kospi and Kosdaq markets, according to the financial investment industry on August 13. Nine were from the Kospi and 27 were from the Kosdaq. Six were already on the watchlist and received additional designation grounds.

On the Kospi, Daeyoung Packaging, Hyungji Elite and Ilshin Stone were designated for failing to meet the minimum share-price requirement. SUN&L, Korea Electronics Holdings, Taewon Mulsan, Daewon Hwasung and Nam Sung were designated for falling below a market capitalization of 30 billion won. Ontide failed both the share-price threshold and the 30 billion won market-cap requirement.

On the Kosdaq, Woori Enterprise, TKG Aekang, CMG Pharmaceutical, Shaperon, Good People, JMI, SDN, OmniSystem, Inno Instrument, EastAid, Noah, S-Energy, LabGenomics, Newintek, Abion, BK Holdings, i-Scream Edu, Wonpoong Mulsan, Barunson E&A, Soosung Webtoon and AFW were designated for failing the minimum share-price rule. Kookil Sindong, Hantop, Fashion Platform and S&W were designated for falling below a market capitalization of 20 billion won. Hyungji Global and E8 failed both the share-price rule and the 20 billion won market-cap requirement.

Among them, BK Holdings, i-Scream Edu, Wonpoong Mulsan, Barunson E&A, Soosung Webtoon and AFW were already on the watchlist and were assigned additional designation grounds.

The Financial Services Commission announced a reform plan in February to speed up and tighten the delisting of troubled companies. Under the plan, a stock is designated as a watchlist item if its market capitalization remains below 30 billion won on the Kospi or 20 billion won on the Kosdaq for 30 straight trading days starting July 1. A new rule also places a stock on the watchlist if its closing price stays below 1,000 won for 30 consecutive trading days from July 1 on either market. A company will be delisted if, after being placed on the watchlist, it fails to meet the share-price or market-cap requirement for at least 45 of the next 90 trading days.

Some of the affected companies have begun taking steps to avoid delisting. Shaperon said on August 12 that a reverse stock split approved at an extraordinary shareholders’ meeting would likely remove the reason for its watchlist designation once the relisting process is completed at the end of September. The company also said its chief executive recently bought company shares as part of a push for management accountability after the stock weakened.

Brokerages say the removal of troubled companies could improve the quality of the Kosdaq market. Lee Sang-jun, an analyst at NH Investment & Securities, said stronger delisting rules would accelerate the exit of weak companies, improving Kosdaq earnings while bringing down elevated valuations relative to profits.

NH Investment & Securities said excluding marginal companies would lift combined operating profit for Kosdaq-listed firms last year to 18.8 trillion won from 14.1 trillion won. Their price-to-earnings ratio would fall to 31.3 from 112.6.

Meanwhile, message boards for the designated companies on portal sites were flooded with anxious comments from retail investors asking whether the stocks could escape the watchlist or face delisting.

Lee Su, Hankyung.com reporter 2su@hankyung.com