[Created using ChatGPT]
[Created using ChatGPT]

Webs, a Kosdaq-listed advanced materials and components maker, had a market capitalization of 17.8 billion won ($12.4 million) as of Monday — below the 20 billion won threshold that triggers delisting eligibility. The company turned profitable in 2023 after years of losses and has posted operating profit for three consecutive years since. Its operating profit reached 5.55 billion won last year, and 770 million won in the first quarter of this year. Yet even Webs cannot escape the tightened delisting requirements. A looming delisting risk only adds further pressure on its share price, creating a vicious cycle.

As the Kosdaq market's prolonged slump deepens, the number of companies falling below the market capitalization requirement is surging. With the minimum market cap for continued listing raised from 15 billion won to 20 billion won starting last month, the pool of companies subject to watchlist designation is expected to expand sharply. Concerns are growing that the downturn could push even fundamentally sound companies toward delisting.

According to Korea Exchange, 143 of the 1,746 Kosdaq-listed companies — excluding special purpose acquisition companies and preferred shares — had a market cap below 20 billion won as of Monday, accounting for about 8.2 percent of the total. That is 2.5 times the 57 companies that fell below the threshold at the start of the year.

The number of companies disclosing concerns about watchlist designation due to insufficient market cap has also surged. According to filings on the Financial Supervisory Service's DART system, 30 Kosdaq-listed companies issued such disclosure notices over the past month. A company becomes subject to the disclosure requirement when its market cap falls below 20 billion won for 25 consecutive trading days.

Actual watchlist designations have jumped as well. According to Korea Exchange's listing disclosure system, 14 Kosdaq companies were placed on the watchlist for failing to meet the market cap requirement last month, up 11 from the three designated in June. Five more have already been added so far this month.

The pace of watchlist designations is expected to accelerate sharply starting Tuesday, when 30 trading days will have elapsed since the market cap threshold was raised to 20 billion won — a point at which companies that have consistently failed to meet the requirement could be placed on the watchlist en masse.

Under the delisting reform plan the Financial Services Commission announced in February, the market cap requirement for Kosdaq-listed companies rose from 15 billion won to 20 billion won effective July 1. Companies that fail to meet the threshold for 30 consecutive trading days are placed on the watchlist. If they then fail to recover compliance for at least 45 of the following 90 trading days, they proceed to delisting.

The broader slump across the Kosdaq market is the backdrop against which financial regulators are now reviewing potential adjustments to the market cap requirement.

The Kosdaq has fallen 20.33 percent from 925.47 at the start of the year to 737.35 as of Monday, a stark contrast to the Kospi's 48.49 percent gain over the same period. Last month, circuit breakers were triggered twice as the index shed more than 21 percent on a monthly basis.

Market analysts say the launch of single-stock leveraged ETFs has drawn retail investor money away from the broader Kosdaq market and into leveraged products, widening a supply-demand gap. "Kosdaq is experiencing its greatest period of neglect relative to the Kospi since the market's inception," said Yoon Jae-hong, a researcher at Mirae Asset Securities. "What is unusual about this downturn is that the market has continued to fall without any major negative catalyst — even accounting for geopolitical tensions between the United States and Iran — and retail investors, who were the main source of buying support in previous downturns, have been pulling out."

From May 27, when single-stock leveraged ETFs were listed, through Monday, the Kosdaq's total market capitalization fell by 633.39 trillion won, a decline of 35.27 percent. Average daily trading value on the Kosdaq plunged from 15.57 trillion won in May to 6.12 trillion won last month.

Market participants warn that shrinking trading volume and deteriorating investor sentiment could expose even healthy companies to delisting risk, regardless of their underlying fundamentals.

"Last month's sharp Kosdaq decline significantly increased the number of companies failing to meet the market cap requirement," said an official at a Kosdaq-listed company. "There is considerable frustration and concern among the chief executives of Kosdaq companies, as firms are now facing delisting risk with no connection to their actual earnings."

The venture industry has consistently raised concerns about the tightened delisting requirements. The Korea Venture Business Association, the Korea Venture Capital Association and the Korea Startup Forum have all asked financial regulators to delay implementation and reconsider the criteria, arguing that quantitative metrics such as market cap alone are insufficient to assess the future value of innovative companies.

"Major overseas markets also make comprehensive listing eligibility decisions through mechanisms such as requiring improvement plans, granting remediation periods and conducting qualitative reviews," said Jeong Ji-su, a senior researcher at the Korea Capital Market Institute. "Domestic rules likewise need to consistently strengthen not only quantitative thresholds but also the consistency of review procedures, the quality of disclosed information and investor protection measures."


moon@heraldcorp.com