Commercial banks reviewing credit exposure to Kosdaq firms facing delisting

Delisting seen as credit risk, raising loan default concerns

High-risk borrowers may face partial repayment demands at rollover

ATMs from major banks are clustered in a building in Seoul. [Newsis]
ATMs from major banks are clustered in a building in Seoul. [Newsis]

As the government tightens listing-maintenance requirements for Kosdaq companies, banks have begun reviewing their exposure to firms at high risk of delisting. Lenders see a delisting as a direct blow to a company's creditworthiness and expect the probability of loan defaults to rise as a result. For the highest-risk borrowers, banks are expected to respond by demanding partial repayment or raising lending rates when loans come up for renewal.

KB, Shinhan, Hana, Woori and other commercial banks have launched their own risk reviews, according to financial industry sources Tuesday. Each bank is conducting internal credit monitoring of at-risk companies and has issued response guidelines to its branches. The number of firms flagged under the tightened listing requirements is estimated at around 40 per bank, though that figure could grow depending on future share price movements. "Among companies at risk of delisting, we have designated three or four with significant loan exposure as priority monitoring targets," an official at one commercial bank said.

Industrial Bank of Korea conducted a special risk review in the first half of this year covering about 70 of the roughly 1,600 Kosdaq-listed companies it does business with that were identified as potential delisting candidates. The bank said it plans to continue monitoring credit risks tied to those companies while tracking the government's regulatory reform direction.

"We are not judging solely on the possibility of delisting — we are looking comprehensively at operating conditions, financial health, technology and business competitiveness, and responding according to each company's individual circumstances," an Industrial Bank of Korea official said. "Given the importance of strengthening companies' fundamental competitiveness, we will actively support the value enhancement of our client firms through non-financial services such as value-up consulting."

The reviews are a follow-up to the delisting reform plan the financial authorities announced earlier this year to enable the swift and strict removal of insolvent companies. Under the plan, a company whose share price remains below 1,000 won for 30 consecutive trading days will be placed on a watchlist; if the price then fails to exceed 1,000 won for 45 consecutive trading days out of the following 90, the company becomes subject to delisting. The minimum market capitalization required to maintain a Kosdaq listing was also raised from 4 billion won ($2.91 million) to 20 billion won. Korea Exchange designated 27 Kosdaq-listed companies as watchlist stocks on Aug. 12 under the tightened requirements.

Banks believe that if a delisting occurs, the likelihood of loan defaults at the affected company will increase. While delisting does not mean a company ceases to exist, it damages creditworthiness and external credibility. When investor confidence in a company weakens following a delisting, the firm may find it harder to attract new investment or raise funds externally. Reduced cash flow can then disrupt operations and erode profitability.

For that reason, banks are expected to demand partial repayment or raise lending spreads when rolling over loans to companies classified as high-risk among those facing potential delisting. "Many penny-stock companies were already in poor financial shape or operating in difficult business environments to begin with," an official at one bank said. "If a delisting then occurs on top of that, their funding conditions will deteriorate further and their ability to repay loans will inevitably weaken."

Some in the industry argue that the government's "productive finance" push — which calls on banks to support companies with strong technology but limited access to funding — sits in tension with the tightened penny-stock delisting rules. Companies that listed on Kosdaq through the technology-exception listing track, which allows firms with recognized technological capabilities but insufficient capital to go public, are subject to the new delisting regulations without exception. "When delisting is pursued according to set criteria, even companies with genuine technological merit can end up being cut," a financial industry official said. "Banks have no choice but to follow the productive-finance policy while also trying to separate the wheat from the chaff."


hyuk@heraldcorp.com
rim@heraldcorp.com