Improvement Plan for Technology Special Listing to Be Announced Next Month... Post-Management and Investor Protection Remain Ongoing Challenges

Containing Measures to Ease Requirements for Switching from Multiple to Single Technology Evaluations
Among 183 Companies Listed via Technology Special Listing, Only 62 Saw Stock Prices Rise on Listing Day
Cases of Inflated Future Performance Forecasts... Preparing Measures to Strengthen Disclosure and Underwriter Responsibility

To revive the venture industry entering an ice age, financial authorities are taking steps to ease funding bottlenecks. The core strategy is to actively promote the ‘technology special listing’ system by directly reaching out to companies. This is based on the assessment that companies are not properly utilizing the system that allows them to raise funds even without sales or profits. Furthermore, the financial authorities plan to announce improvements to the special listing system next month to support smoother listings.

Single Technology Evaluation for AI Semiconductors, Secondary Batteries, etc... Improvement Plan to be Announced in July

According to the financial investment industry, the financial authorities’ upcoming improvement plan for the special listing system will include a relaxation measure to switch the technology evaluation for industries classified as national strategic technologies from multiple evaluations to a single evaluation. The aim is to reduce the time and cost required for listing and help companies struggling to raise funds. The financial authorities, along with the Ministry of Trade, Industry and Energy and the Ministry of Science and ICT, are currently coordinating details regarding the industries to which the single evaluation will apply. Industries expected to be included are artificial intelligence (AI) semiconductors, displays, advanced mobility, secondary batteries, and robotics.

The technology special listing refers to promising technology companies with outstanding technological capabilities obtaining listing qualifications by receiving technology evaluations from specialized evaluation agencies. Even without sales or profits, companies can enter the KOSDAQ market if they prove their technological capabilities. Technology evaluations must be conducted by multiple specialized evaluation agencies, and companies must receive at least an A grade and a BBB grade to be eligible for listing review. However, the Korea Exchange has made an exception for the materials, parts, and equipment (SoBuJang) sector. If a company receives at least an A grade from one evaluation agency, it can proceed with listing.

With this system improvement, companies belonging to government-designated industries are expected to save time and costs for listing and thus be able to raise funds more easily. Since the improvement plan also includes measures to strengthen information sharing between the exchange and the Financial Supervisory Service, the cumbersome processes companies faced are expected to disappear.

However, it is explained that this does not mean opening the listing path or easing listing thresholds only for certain companies. The Venture Capital Association has long advocated for the introduction of a ‘deep tech (innovation technology-based companies) exclusive technology special listing system.’ Since the technology special listing system was initially introduced to foster the bio industry, the argument was that a separate listing path is needed to nurture the deep tech industry as well. In response, a Korea Exchange official said, “This should be understood as an effort to fix unreasonable parts in the listing process that companies do not need to go through for faster listing.” He emphasized, “We have already diversified technology evaluation models into IT, bio, SoBuJang, and convergence sectors so that companies can choose and apply accordingly, so there is no need to establish a listing system for specific industries.” He added, “It is still a misunderstanding to view the technology special listing system as a listing system only for bio companies.”

Companies’ Breathing Room Opens, but... Looking at Stock Prices, Sighs Remain

It is true that the technology special listing system was introduced to facilitate smooth listings for bio companies. Bio companies developing new drugs require more time than companies in other fields to confirm technology as sales, but they need substantial funds for clinical trials and research and development.

However, since 2014, the door to technology special listing has been opened to non-bio companies as well, and it has now become a channel for companies with technological capabilities and growth potential to raise funds. Starting with Astr, an aircraft parts manufacturer, in 2014, 79 non-bio companies have utilized the technology special listing system to establish themselves in the KOSDAQ market. Since 2021, the number of technology special listing applications from non-bio companies has increased. In 2021, 9 bio companies were listed, but 22 non-bio companies entered the market. In 2022, there were 8 bio companies and 20 non-bio companies. In the first half of this year, 4 bio companies and 9 non-bio companies were recorded.

However, the problem lies in the stock prices of these companies. Although listings have increased significantly, investor confidence in technology special listing companies appears to be declining. After passing technology evaluations, companies estimate future performance projections themselves to determine the public offering price. However, it is common that the future corporate value estimated at the time of listing is not realized in reality. Among 183 companies listed on KOSDAQ through technology special listing, only 62 companies have maintained a positive (+) stock price compared to the listing day, which is less than half. Only 55 companies (about 30%) have achieved double-digit returns.

For example, Engchem Life Science, a new drug development company that transferred from KONEX to KOSDAQ through technology special listing in February 2018, has never made a profit since listing. It recorded an operating loss of 14.3 billion KRW in 2018 and continued to perform poorly with losses of 16.4 billion KRW in 2019, 19.1 billion KRW in 2020, 20.7 billion KRW in 2021, and 14.6 billion KRW in 2022. It also recorded an operating loss of 3 billion KRW in the first quarter of this year. Moreover, while it was expected that operating profit would be difficult to achieve immediately, announcements such as clinical trial suspensions, the major shareholder’s refusal of a paid-in capital increase, and delayed COVID-19 vaccine production negatively affected the stock price. The adjusted closing price on the listing day was 13,131 KRW, but as of the 21st, the closing price was 1,585 KRW, a drop of about 88%.

Several companies have already been designated as management targets. Management targets are companies designated by the exchange as candidates at risk of delisting to inform investors. The financial authorities apply more lenient listing continuation criteria to technology special listing companies considering their characteristics than to general KOSDAQ listed companies, but some companies still fail to meet these criteria and are designated as management targets.

Technology special listing companies are designated as management targets if they meet any of the following: ‘sales below 3 billion KRW,’ ‘annual losses exceeding 50% of capital twice or more in the last three years,’ ‘four consecutive years of operating losses,’ or ‘capital below 1 billion KRW.’ If these conditions persist, delisting follows. Currently, four technology special listing companies?Intromedic, Innosys, Earth & Aerospace, and Cellivery?are designated as management targets.

In the case of Intromedic, the exchange’s corporate evaluation committee is currently reviewing whether to delist the company. In January this year, Yuneco (formerly Ecomister, listed in 2018), a waste disposal company, was delisted for the first time as a technology special listing company. At the time of listing in 2018, Yuneco projected net profits of 8.4 billion KRW in 2018, 11.3 billion KRW in 2019, and 16 billion KRW in 2020, valuing the company at over 100 billion KRW. However, actual results showed losses of 37.5 billion KRW in 2019, 19.4 billion KRW in 2020, and 4.2 billion KRW in 2021.

Strengthening Disclosure of Technology Development Status, Penalties for Underwriters, and Other Discussions

The financial authorities plan to include strengthened disclosure requirements in the improvement plan to reduce side effects of the special listing system, protect investors, and restore trust. The key points are to enhance disclosure of the performance and technology development status of technology special listing companies and to strengthen the responsibilities of listing underwriters (securities firms). Measures are being prepared to prevent securities firms and companies from colluding to excessively inflate valuations during IPO pricing to boost IPO success and to manage stock prices, thereby reinforcing the practical responsibilities of listing underwriters.

An official from the financial investment industry explained, “While continuous disclosure of technology capabilities after listing can serve to provide information to investors, it also has negative effects such as revealing company technology to competitors.” He added, “The exchange and financial authorities are likely considering a middle ground between investor protection measures and these concerns.”

This content was produced with the assistance of AI translation services.