The KOSDAQ market experienced a decline of over 20% in July, resulting in a surge of companies failing to meet listing maintenance standards. Despite the government's efforts to enhance delisting criteria to improve corporate value, the overall market drop has put even financially sound companies at risk of delisting, raising concerns about the need for regulatory adjustments.
According to the Financial Supervisory Service's electronic disclosure system, 30 KOSDAQ-listed companies issued warnings about being designated as management items due to insufficient market capitalization during July. This averages to one company per day. Notably, from July 22 to 31, during the market's steep decline, 19 companies made related disclosures.
This situation follows the government's decision to raise the market capitalization standards for maintaining KOSDAQ listings. Under the new criteria, companies with a market capitalization below 20 billion won for a certain period will be designated as management items, and if they fail to rectify this, delisting procedures will commence.
A significant issue is that many of the recent cases are more influenced by the market downturn than by individual company failures. The KOSDAQ index fell by 21.4% in July, marking one of the largest declines since the global financial crisis. On July 29, the index even dipped below the 630 mark. Trading volume also plummeted to 6.1 trillion won, the lowest level this year.
Analysts suggest that the sharp decline in semiconductor stocks and a drop in investor sentiment have led to a sell-off that began with large-cap stocks and spread to mid- and small-cap stocks, significantly reducing the market capitalization of many companies.
Among the companies facing management item designations are those that are profitable or do not have financial issues such as capital erosion. This indicates that the overall market decline, rather than individual company performance, is the primary cause of the drop in market capitalization.
The securities industry has raised concerns that the current regulations do not adequately reflect market conditions. Unlike other delisting reasons, the process for delisting due to insufficient market capitalization is initiated without a substantive review or improvement period if the shortfall persists for a certain duration. There is no procedure to distinguish between temporary market-driven declines and those resulting from a company's loss of competitiveness.
A securities industry representative stated, "Recently, there have been increasing instances where market capitalization falls below the threshold due to deteriorating investor sentiment, regardless of company performance. It is necessary to review whether applying the same standards in situations where market volatility has a greater impact than a company's operational performance or financial health is appropriate."
However, there is a general consensus in the market on the need to strengthen listing maintenance criteria. The rationale is that timely removal of uncompetitive, failing companies is essential to enhance trust in the capital market. Nonetheless, there is growing support for implementing flexible measures regarding the market capitalization assessment period or evaluating companies' self-rescue efforts during exceptional market downturns.
* This article has been translated by AI.
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