Starting in July, the delisting of penny stocks will be implemented more rigorously. Financial authorities are significantly tightening the criteria for market capitalization, penny stocks, and disclosure violations, leading to an expected surge in companies facing delisting pressure in the second half of the year. Market analysts suggest that this marks the beginning of a phase to eliminate so-called "zombie companies."
On May 13, the Financial Services Commission announced at its ninth regular meeting that it has approved amendments to the Korea Exchange listing regulations to implement the "swift and strict delisting reform plan for struggling companies" announced in February. The new rules will strengthen four key delisting criteria—market capitalization, penny stocks, complete capital erosion, and disclosure violations—across both KOSPI and KOSDAQ markets.
One of the most notable changes is the enhancement of market capitalization requirements. Previously, the threshold for maintaining a KOSPI listing was set to rise to 30 billion won in 2027 and 50 billion won in 2028. However, this has been accelerated, with the new thresholds set at 30 billion won starting in July and 50 billion won beginning in January 2024. KOSDAQ will see similar increases to 20 billion won and 30 billion won during the same period.
The method for determining delisting will also be strengthened. Previously, companies designated as management issues could avoid delisting by meeting the criteria of "10 consecutive trading days or 30 cumulative trading days" within a 90-day period. Under the new rules, companies must maintain a standard of "more than 45 consecutive trading days" to avoid delisting, aimed at preventing temporary stock price boosts from allowing companies to evade delisting.
The most significant market impact is expected from the new "penny stock delisting" rule. Financial authorities have introduced a new criterion for stocks priced below 1,000 won. If a stock remains below 1,000 won for 30 consecutive trading days, it will be designated as a management issue, and if it fails to recover the price within 45 consecutive trading days over the next 90 trading days, delisting procedures will commence.
Concerns have been raised that some companies previously avoided delisting by artificially inflating their stock prices through large-scale stock consolidations or reductions. To prevent such circumventions, new regulations have been introduced. Companies that have conducted stock consolidations or reductions within the past year will be prohibited from further consolidations or reductions after being designated as management issues, and excessive consolidations exceeding a 10-to-1 ratio will also be restricted.
Tension in the market is also rising regarding companies that have received adverse audit opinions. According to the Korea Exchange, a total of 54 companies, including 12 on KOSPI and 42 on KOSDAQ, received adverse audit opinions (including limited opinions) this year. While this is a slight decrease from 57 last year, the number remains high.
The issue is that cases of companies resolving audit opinion problems and returning to normal status are rare. Among the 57 companies that received adverse opinions last year, only eight have regained a "proper" opinion this year. The remaining companies either received adverse opinions again or entered delisting procedures.
Particularly, there has been an increase in forced delisting cases in the KOSPI market this year. In the last three years, there were no delisting decisions in the first quarter, but this year, five companies, including Daedong Electronics, Kukbo, Well Biotech, IHQ, and KH Philux, have already been delisted from the market.
Companies that have received adverse audit opinions for two consecutive years are also considered high-risk. Geumyang has recently faced delisting due to receiving adverse opinions for two consecutive years, while KC Green Holdings, Bumyang Construction, and Samboo Construction have also received consecutive adverse opinions.
Additionally, the inclusion of complete capital erosion based on semiannual standards as a delisting review criterion is expected to increase the burden on companies with weak financial structures. Previously, complete capital erosion was only a formal delisting criterion at the end of the business year, but now semiannual capital erosion will also be subject to substantive review.
The criteria for disclosure violations will also be strengthened. The cumulative penalty points for disclosure violations over the past year will be lowered from the previous 15 points to 10 points, and any significant or intentional disclosure violation will trigger a delisting review even if it occurs just once.
Through this reform, financial authorities aim to change the domestic stock market structure, which has been characterized by "easy listings and difficult delistings." The Financial Services Commission stated, "This is intended to support the smooth listing of innovative companies while swiftly and strictly delisting struggling companies, transitioning to a 'many births, many deaths' market structure."
* This article has been translated by AI.
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