As financial authorities intensify efforts to expel poorly performing companies from the stock market, many firms are opting for stock consolidations. However, despite the numerical boost in stock prices from these consolidations, many companies are experiencing significant declines shortly after their re-listing, leading to concerns that simple consolidation is insufficient for long-term stability.
According to the Korea Exchange, from May 18 to 20, ten companies listed on the KOSPI and 21 on the KOSDAQ underwent stock consolidations. All of these companies recorded declines compared to their consolidation reference prices. The average drop for KOSPI stocks was 14.7%, while KOSDAQ stocks saw an average decline of 15.86%. Most of these stocks plummeted on their first day of re-listing, with investor sentiment rapidly cooling.
On the previous trading day (May 20), among the KOSPI stocks that underwent consolidation, Korea Electronics Holdings closed at 2,950 won, down 26.34% from its reference price. KEC fell by 29.92%, Bohae Brewery by 20.62%, and Enex by 14.95%. Ontide also dropped by 5.02%.
Stock consolidation typically involves merging multiple shares to reduce the total number of shares and increase the price per share. Recently, companies have been using this strategy to shed their 'penny stock' image and avoid delisting requirements. For instance, consolidating five shares priced at 500 won each into one share raises the price to around 2,500 won.
In February, the Financial Services Commission announced a reform plan aimed at the swift and strict delisting of underperforming companies. Starting July 1, any stock trading below 1,000 won for 30 consecutive trading days will be designated as a management stock. If it remains below that threshold for more than 45 out of the next 90 trading days, it will face delisting procedures.
The recent declines in the stock prices of companies that have undergone consolidation suggest that fears of delisting persist. The Financial Services Commission is also tightening market capitalization criteria. From July, companies with a market capitalization below 30 billion won on the KOSPI and below 20 billion won on the KOSDAQ will be subject to delisting reviews. By January of next year, these thresholds will be further lowered to 50 billion won for KOSPI and 30 billion won for KOSDAQ companies. Many of the recently consolidated stocks have market capitalizations below 50 billion won.
Market analysts note that stock consolidation alone does not enhance a company's value, and without improvements in performance or financial stability, regaining investor confidence will be challenging.
A securities industry representative stated, "Stock consolidation is merely a technical adjustment of share quantity and price; it does not change a company's fundamentals. To alleviate delisting concerns, substantial changes such as performance improvement, financial stability, and shareholder return policies are essential."
* This article has been translated by AI.
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