Concerns Over IPO and Delisting System Improvements... "No Innocent Victims Should Arise"

Joint Seminar on IPO and Delisting System Reform
Concerns Over Delisting of Sound Companies With Uniform Criteria
"Need for a 'Second Chance' System to 'Separate the Wheat from the Chaff'"

Financial authorities have introduced measures to delist so-called 'zombie companies' from the stock market and to resolve the phenomenon of 'opening price dumping' of IPO stocks in the public offering market, but experts have offered mixed diagnoses. While there is agreement on the policy goal of advancing the Korean capital market, concerns have been raised that the strict delisting criteria could lead to unintended victims.

The Financial Services Commission, in collaboration with related organizations, has prepared the 'IPO System Improvement Plan' and the 'Delisting System Improvement Plan' to consistently promote value-up in the capital market. On the 21st, together with the Financial Supervisory Service, Korea Exchange, Korea Financial Investment Association, and Korea Capital Market Institute, they co-hosted the 'Joint Seminar on IPO and Delisting System Improvement' and announced a plan to gradually raise the market capitalization criterion for delisting from the current 50 billion KRW to 500 billion KRW, a tenfold increase.

Additionally, they decided to prioritize allocation of more than 40% of the institutional investor allotment of newly listed stocks to institutional investors who commit to mandatory holding, thereby curbing the 'short-term trading' of IPO stocks by institutions that distort the IPO market.

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The delisting and IPO system improvement plans focus on timely removing low-performing companies to enhance overall market value and normalizing the distorted stock price trends in the IPO market, which has been dominated by short-term profit-seeking investments. Experts attending the panel discussion agreed on the purpose of enhancing the soundness of the capital market but expressed concerns about potential side effects.

Kim Chun, Head of Policy Division 1 at the Listing Council, said, "The plan to gradually delist companies that fall below the market capitalization criteria is desirable, but it is important to realistically raise the market cap threshold." He added, "Among companies delisted due to low sales or market cap, there are some that do not have profitability issues." This points out the risk that companies with high profitability might be unfairly delisted if only sales or market cap are used as criteria to classify insolvent companies. Kim suggested, "If a company does not have profitability problems, it seems necessary to prepare separate relief measures. Instead of immediately delisting companies removed from KOSPI, we could consider guiding them to move to markets such as KOSDAQ or KONEX."

Kim Junman, Executive Director of the KOSDAQ Association, also expressed concern, saying, "If the delisting criterion for KOSDAQ is set at 30 billion KRW market cap, even sound companies could be at risk." He warned, "If companies with market caps around 30 billion KRW bear the risk of delisting, good companies could suffer from stock price declines and other damages."

He emphasized the need to relax delisting criteria or provide a grace period for objection to 'separate the wheat from the chaff' for companies in their growth phase whose corporate value has not yet been properly reflected in their market capitalization.

According to the delisting system improvement plan, the market capitalization and sales criteria for KOSPI will be raised from the current 5 billion KRW each to 50 billion KRW and 30 billion KRW, respectively, over the next three years. For KOSDAQ, the market cap and sales criteria will also increase from 4 billion KRW and 3 billion KRW to 30 billion KRW and 10 billion KRW, respectively. The market cap criteria will be raised starting January next year, and the sales criteria will be phased in starting January 2027, one year later.

Voices calling for supplementary measures were also raised regarding the IPO system improvement plan. KB Securities' Head of Division Yoo Seungchang pointed out, "There are periods when market risk overwhelms individual stock risk," adding, "In such cases, underwriters who bear the burden of listed company shares will approach IPOs conservatively, which could lead to a decrease in IPO supply and negatively affect the market."

He diagnosed that measures considering the profitability of underwriters are needed, given potential difficulties in attracting IPO personnel. According to the system improvement plan, if the mandatory holding commitment volume falls below 40%, the underwriter must acquire 1% of the public offering volume (with a cap of 3 billion KRW) and hold it for six months.

Regarding concerns, Ko Sangbeom, Director of the Capital Market Division at the Financial Services Commission, said, "The system improvement plan aims to institutionally push forward to create rational practices for IPOs." He added, "Although there will be short-term burdens, once well established, it is expected that the artificially set criteria can be flexibly adjusted."

At the seminar, experts also suggested concretizing the cornerstone investor system. The cornerstone investor system is a scheme where issuers and underwriters secure investors before submitting the securities registration statement during the IPO process and allocate part of the public offering shares to them. Lee Seokhun, Senior Research Fellow at the Korea Capital Market Institute, emphasized the need to introduce the cornerstone investor system domestically, which has been successfully implemented in Hong Kong, Singapore, and Europe. He stressed, "It can reduce the uncertainty of fundraising even in uncertain public offering or IPO market downturns."

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