Securities district in Yeouido, Seoul. Yonhap News
With a new rule set to take effect next month making penny stocks (shares trading below 1,000 won) subject to delisting requirements, 8% of all listed companies still have share prices below 1,000 won.
According to the Korea Exchange (KRX) on Wednesday, a total of 219 listed companies on domestic markets had share prices below 1,000 won as of the 19th. This represents 7.6% of all 2,877 listed companies. Specifically, there were 42 companies on KOSPI, 148 on KOSDAQ, and 29 on KONEX. The market capitalization of penny stocks stood at 5.5075 trillion won on KOSDAQ and 2.4413 trillion won on KOSPI, exceeding 8 trillion won when KONEX is included.
Starting next month, these stocks could become subject to market removal after a certain period if they fail to recover to the 1,000 won range. The financial authorities revised the listing rules because penny stocks not only often become targets of speculation by so-called “manipulators” but are also inherently highly volatile.
Under the “delisting reform plan for the swift and strict removal of insolvent companies,” the Korea Exchange will, starting on the 1st of next month, designate stocks as administrative issues if their share price stays below 1,000 won for 30 consecutive trading days. If such stocks then fail to maintain a price of 1,000 won or higher for 45 consecutive trading days out of the following 90 trading days, they will be deemed in a “price shortfall” state and delisted. Considering the period from administrative issue designation to meeting the price shortfall criteria, delisting procedures could begin as early as the fourth quarter. The Korea Exchange plans to continuously monitor whether companies meet the price shortfall requirement, while immediately providing guidance and taking action on administrative issue designations and the occurrence of delisting causes through informational disclosures.
A representative method for penny stock companies to resolve the price shortfall requirement is a stock merger. This approach raises the per-share price by combining multiple shares into one to reduce the number of issued shares. According to the Financial Supervisory Service’s electronic disclosure system, 219 companies disclosed stock mergers from February this year, when discussions on penny stock delisting began, through the 19th of this month. However, starting next month, stock mergers aimed at circumventing delisting will face some restrictions.
