Following the strengthening of delisting criteria in the KOSDAQ market, there has been a significant increase in stock consolidations and capital reductions.
According to the financial investment industry on October 5, Ahn Yu-mi, a senior researcher at the Capital Market Research Institute, analyzed this trend in a recent report titled 'Response and Evaluation of Risky Companies Following Strengthened KOSDAQ Delisting Criteria.'
Earlier this year, financial authorities announced reforms to the delisting system in February to curb the long-term presence of insolvent companies in the KOSDAQ market.
As a result, starting in July, the market capitalization threshold for delisting was raised from 15 billion won to 20 billion won, and new criteria for 'penny stocks' with share prices below 1,000 won were established.
Stock consolidation, which reduces the number of shares while increasing the price per share, can be used as a measure to respond to the penny stock criteria.
Since the regulatory changes, there has been a notable increase in stock consolidation activities in the KOSDAQ market.
Ahn reported that the number of companies announcing stock consolidation decisions has surged to 220 as of September 4, compared to about 10 companies annually in previous years. This figure is approximately 14.7 times the total of 15 companies from last year.
In the same period, 59 companies in the KOSPI also decided on stock consolidation, indicating a concentrated response in the KOSDAQ.
The number of companies opting for capital reduction has also increased.
As of September 4, the number of KOSDAQ companies deciding on capital reduction rose from 23 in 2022 to 65 this year, already exceeding last year's total by 21 companies (47.7%).
Capital reduction can be used not only to improve capital erosion through loss compensation but also to reduce the number of shares and increase the unit price.
As of September 4, 158 companies in the KOSDAQ had conducted stock consolidation, while 48 companies in the KOSPI had done the same.
However, it cannot be definitively concluded that stock consolidations and capital reductions are solely responses to the strengthened delisting criteria, as these measures may also serve various operational purposes.
Since the new market capitalization and share price criteria were applied in July, 60 KOSDAQ companies have been designated as management-designated due to failing to meet the relevant criteria as of September 4.
Among these, 38 companies (63.3%) were cited for being below the 20 billion won market capitalization threshold, while 30 companies (50.0%) were cited for having share prices below 1,000 won. Eight companies met both criteria.
Of the 60 companies, 27 (45.0%) have taken post-measures such as capital increases, stock consolidations, capital reductions, or treasury stock acquisitions since being designated as management-designated.
By type of response, capital increases were the most common at 13 companies, followed by stock consolidations at 10 companies, stock retirements at 3 companies, treasury stock acquisitions at 3 companies, merger decisions at 2 companies, and free capital increases at 1 company. Five companies employed multiple response measures.
There have also been cases where the effects of stock consolidation did not persist.
Ahn analyzed companies that conducted stock consolidations after the announcement of the delisting reform plan on February 12, and found that as of September 4, 154 out of 158 companies (97.5%) had share prices above 1,000 won immediately after the consolidation.
However, after 20 trading days, 17 out of 124 observable companies (13.7%) had fallen back below the 1,000 won mark.
The median stock return based on the closing price on the consolidation date showed declines of -8.2% after 5 trading days, -24.2% after 20 trading days, and -25.4% after 60 trading days. After 20 trading days, 16 companies fell below the new par value.
Ahn noted that there are instances where the price increase effect from stock consolidation does not last, indicating limitations in fundamentally resolving the risks of low-priced stocks through consolidation alone.
Meanwhile, among the companies designated as management-designated under the strengthened market price criteria, some have shown relatively sound financial and operational fundamentals.
Of the 59 management-designated companies for which financial data was available in the first half of this year, 52 companies (88.1%) had total capital exceeding their paid-in capital, indicating no capital erosion.
Among these, 11 companies (18.6%) showed increases in sales, with both operating profit and cash flow from operating activities in the black. Seven of these companies turned their operating profits from losses in the same period last year to profits in the first half of this year.
Ahn explained, "This shows that market prices such as market capitalization and share prices may not necessarily align with the actual financial and operational conditions of companies."
The government had initially planned to raise the KOSDAQ market capitalization delisting threshold to 30 billion won starting in January next year, but has postponed the implementation to July next year, considering market conditions and feedback from the business community.
Ahn stated, "While some companies with relatively sound financial conditions have been identified despite falling short of market price criteria, it is necessary to continuously monitor the results of applying the current 20 billion won standard and the characteristics of actual delisted companies, along with the government's supplementary measures and the impact of any additional criteria increases on businesses and the market."
* This article has been translated by AI.
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