The Financial Services Commission and the Korea Exchange have unveiled the detailed criteria for the disclosure system targeting low Price-to-Book Ratio (PBR) companies, seeking public feedback. This initiative, known as 'Naming & Shaming,' aims to identify companies that have maintained low stock prices for an extended period without efforts to enhance their corporate value, with implementation set for November.
On the 29th, the Financial Services Commission and the Korea Exchange announced the criteria for the low PBR disclosure system as a follow-up to the 'Capital Market Improvement Plan.' Companies will be identified based on their PBR, calculated semi-annually by market and industry. For KOSPI-listed companies, those in the bottom 25% of their industry will be disclosed, while KOSDAQ-listed companies in the bottom 10% will also be included if they meet these criteria for three consecutive years (six half-years).
Industries are categorized into 11 sectors according to the Global Industry Classification Standard (GICS) to reflect structural PBR differences based on industry characteristics.
For PBR calculations, net assets will be derived from audited financial statements in business and semi-annual reports. Market capitalization will be based on the average over the 20 trading days leading up to the disclosure date (the first trading day of May and November), using the date seven trading days prior as the reference point.
In principle, companies that have been below the criteria for six consecutive half-years will be disclosed. However, to prevent temporary stock price increases from excluding companies from disclosure, if a company exceeds the criteria in one of the last six half-years, the previous half-year will also be checked. If it remains below the criteria, the company will still be disclosed.
To avoid retroactive application controversies, an exception will be made for the first disclosure. If a company's PBR exceeds the criteria calculated on October 22 for the November disclosure, it will be excluded regardless of past performance.
KOSDAQ will apply more lenient standards than KOSPI. The Financial Services Commission explained that the KOSDAQ market is currently undergoing restructuring and is characterized by technology and venture-focused companies, hence the lower threshold of the bottom 10% by industry.
Companies that announce plans to enhance their corporate value will be granted exemptions from disclosure. If a company submits a corporate value enhancement plan that includes strategies for improving low PBR, in the format specified by the exchange, it will be excluded from disclosure for the following year (two half-years).
However, this exemption will not apply to companies that have maintained low PBR for an extended period. If a company has been in the bottom 25% of KOSPI or the bottom 10% of KOSDAQ for a cumulative six years (12 half-years), it will still be disclosed even if it announces a corporate value enhancement plan.
To ensure the effectiveness of corporate value enhancement plans, the exchange will prepare a separate format that includes 'cause analysis, goal setting, improvement plans, and implementation evaluation.' Additionally, a system will be established for companies to verify their past half-year PBR and compliance with industry standards.
According to the exchange's simulations, approximately 120 companies (80 from KOSPI and 40 from KOSDAQ) will not qualify for exemptions, while around 220 companies (130 from KOSPI and 90 from KOSDAQ) will meet the disclosure criteria, representing about 5-10% of all listed companies.
Low PBR companies will be disclosed on the first trading day of May and November through the Korea Exchange's disclosure website. Companies identified will also have the 'low PBR' tag displayed in securities firms' mobile trading systems (MTS).
The exchange plans to conduct management interviews, briefings, and consulting for companies identified for disclosure. For smaller companies, support for PBR improvement consulting through external professional organizations is also being considered.
Furthermore, the evaluation criteria for the substantive review process of delisting will include financial indicators related to shareholder value, such as PBR, and the stewardship code guidelines will incorporate institutional investors' involvement in enhancing corporate value for low PBR companies. However, PBR itself will not be added as a reason for initiating delisting reviews.
The Financial Services Commission and the exchange will announce proposed amendments to exchange regulations and rules next week and will gather public opinions until the 24th. Following this, they plan to implement the first disclosure on November 2 after approval from the Securities and Futures Commission and the Financial Services Commission in September.
* This article has been translated by AI.
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