Profitable firms facing delisting may transfer to Konex

Companies that fail to secure a designated adviser within a year face re-delisting

Silla SG opts for transfer; KM Pharmaceutical heads to court

[Getty Images Bank]
[Getty Images Bank]

A new pathway has been created for Kospi and Kosdaq-listed companies facing delisting due to insufficient market capitalization, allowing them to transfer to the Konex market. Korea Exchange announced plans to establish a dedicated "market-transfer division" within Konex to accommodate these companies.

Critics have called the measure a "temporary reprieve," noting that companies failing to secure a designated adviser within one year will still face delisting, and that Konex itself suffers from low liquidity. Loss-making companies that do not meet the transfer requirements are turning to the courts, filing for injunctions against their delisting decisions.

Korea Exchange recently announced a proposed amendment to the Konex Market Listing and Business Regulations Enforcement Rules, which spells out the criteria for transferring companies with insufficient market caps to Konex.

The measure is a supplementary response to the financial authorities' sharp tightening of listing maintenance standards. After the market cap floor was raised on July 1 — to 30 billion won ($21.9 million) for Kospi and 20 billion won for Kosdaq — fears of mass delistings spread rapidly. Authorities held a joint ministerial review meeting Sept. 4 and decided to open a Konex transfer route for profitable companies only. The next scheduled increase — to 50 billion won for Kospi and 30 billion won for Kosdaq — was also pushed back by six months, from January to July of next year.

The centerpiece of the amendment is the creation of the "market-transfer division" within Konex, added alongside the existing startup division, crowdfunding division and general division. The new unit provides a separate management category for listed companies migrating down from Kospi and Kosdaq.

Companies placed in the market-transfer division may later move to the general division if they meet the relevant requirements, but once transferred to the general division they cannot return to the market-transfer division.

Special exemptions are also granted for companies moving down from the upper markets. While Konex listings are in principle restricted to small and medium-sized enterprises, market-transfer companies are exempt from submitting the SME verification documents required under the Framework Act on Small and Medium Enterprises. This is because some Kospi-listed companies do not legally qualify as SMEs given their sales, asset size or affiliate relationships.

In addition, the obligation to appoint a "designated adviser" — responsible for disclosure guidance and business report preparation — is deferred for one year from the listing date. Market-transfer companies are also exempt from the requirement to enter into a liquidity provider agreement. As long as they meet conditions such as a minority shareholder stake of at least 10 percent, they can continue trading without the burden of a liquidity provider arrangement in the early period after transfer.

If a company fails to sign a designated adviser contract by the end of the one-year grace period, trading will be suspended and Konex delisting procedures will begin. Industry observers note that finding a securities firm willing to provide long-term dedicated management for a demoted company and guide it back to Kosdaq is no easy task, and that effective follow-up measures are needed.

Investor protection also remains a challenge. Even if a market-transfer company's new listing application contains false information or material omissions, investors cannot seek damages under Article 125 of the Capital Markets Act or file securities-related class action suits, given that Konex listings involve no public offering process. While the existing Konex market has been dominated by institutional investors, market-transfer companies are likely to bring with them large numbers of retail minority shareholders from their Kospi or Kosdaq days, raising concerns about potential investor confusion.

Eligibility for transfer is determined by strict financial criteria. A company must show no capital impairment based on its most recent quarterly or semi-annual report, and must have recorded operating profit in at least two of the past three fiscal years — or in at least one year while maintaining equity capital of at least 20 billion won.

As the framework takes shape, companies are finding themselves on diverging paths. Silla SG, a seafood processing company, is being cited as the likely first transfer case. After being placed on the administrative issues list in July due to insufficient market cap, Silla SG decided Friday to apply for a Konex transfer listing and submitted a preliminary consultation request. The company posted operating profits for two consecutive years in 2023 and 2024, satisfying the transfer requirements. Its Kosdaq delisting and cleanup trading procedures have been suspended pending the outcome of the Konex review, buying the company time for a potential revival.

Companies that do not meet the transfer requirements, by contrast, are heading to court. KM Pharmaceutical, a Kosdaq-listed company whose delisting was decided after its market cap fell below 20 billion won, filed an injunction Tuesday to halt the effect of the delisting decision. The scheduled delisting procedures are on hold pending the court's ruling.

"When the market cap floor is raised a second time next July, legal battles by marginal companies excluded from the relief measures will intensify," a financial investment industry official said. "Effective follow-up measures — such as incentives to attract designated advisers — must follow to prevent the market-transfer division from becoming a mere delay mechanism for companies on the verge of being expelled."


jiyun@heraldcorp.com