More Than 200 Korean Penny Stocks Face Delisting Under Tougher July Rules

More than 200 South Korean listed companies could face delisting ahead of the July rollout of tougher exchange rules for so-called penny stocks trading below 1,000 won.

Starting next month, listed companies whose shares remain below 1,000 won for 30 consecutive days will be designated as watch-list issues. They will then be delisted if they fail to trade at or above 1,000 won for 45 consecutive days during the following 90-day period. Companies are rolling out measures such as reverse stock splits to preserve their listings, but investor concern over the affected firms is mounting.

As of June 19, 219 companies listed on the Kospi, Kosdaq and Konex markets were trading below 1,000 won, accounting for 7.6% of the country's 2,877 listed firms, according to the Korea Exchange on June 21. Of those, 148 were listed on the Kosdaq, 42 on the Kospi and 29 on the Konex.

The combined market value of those penny stocks stood at 5.5075 trillion won on the Kosdaq and 2.4413 trillion won on the Kospi. Including Konex-listed firms, the total exceeded 8 trillion won.

The Korea Exchange previously said it would sharply tighten listing maintenance standards for penny stocks and other companies while accelerating the removal of troubled firms under its delisting reform plan. Starting in July, a company will face delisting if it meets any one of four conditions: a market capitalization below 20 billion won, a share price below 1,000 won, full capital impairment on a half-year basis, or cumulative disclosure penalty points of 10 or more over the past year, with immediate action for serious and intentional violations.

The rule will also apply when a company's share price remains below par value even after a reverse stock split. The exchange said the move reflects concerns that thinly traded shares can be exploited for stock-price manipulation.

Companies at risk of removal are moving quickly to meet the standards. Reverse stock split filings have surged. Since discussion of delisting penny stocks began in February through June 19, 219 companies disclosed reverse stock splits, up 24-fold from nine a year earlier in the same period, according to the Financial Supervisory Service's electronic disclosure system. Among Kospi-listed firms, the number rose to 43 from one. Among Kosdaq-listed firms, it climbed to 176 from eight.

Companies are also turning to capital reductions in an effort to shake off penny-stock status. For example, if a company with a par value of 500 won per share, a share price of 500 won and capital of 50 billion won carries out a 10-for-1 capital reduction without compensation, its capital falls while both par value and share price rise tenfold to 5,000 won.

From February through June 19, 118 companies disclosed capital reduction decisions, more than double the 47 recorded a year earlier in the same period, according to the Financial Supervisory Service.

Industry participants expect the list of delisting candidates to grow sharply from the fourth quarter. Given the time required for watch-list designation and for companies to miss the price threshold, some stocks could enter delisting procedures as early as the fourth quarter. That has fueled expectations that the number of delistings this year could reach a record high. The exchange expects the number of Kosdaq companies subject to delisting to rise to about 150, within a range of 100 to 220. The highest annual delisting tally on record came during the 2000 dot-com bubble, when 127 stocks were removed.

Shareholders in companies facing possible removal are growing increasingly anxious. One shareholder in a Kospi-listed penny stock wrote on an online message board that the stock was "moving in reverse in a huge bull market." Another retail investor said they had sold at a loss after holding the shares for more than three years.

Oh Jung-min, Hankyung.com reporter blooming@hankyung.com