Follow-up delisting procedures suspended for now

19 Kospi, 40 Kosdaq firms on watch list

Korea Exchange's Yeouido office in Yeongdeungpo-gu, Seoul [Korea Exchange]
Korea Exchange's Yeouido office in Yeongdeungpo-gu, Seoul [Korea Exchange]

Korea Exchange said it will suspend follow-up delisting procedures for companies that had been subject to delisting for failing to meet market capitalization requirements. The move comes after a court granted injunctions filed by companies that had challenged the procedural legitimacy of the tightened delisting standards.

Korea Exchange announced the decision Wednesday in a press release, saying it would present its case through the objection process in response to the court's injunction rulings and related lawsuits.

"Taking into account the intent of the court's ruling, the designation of companies as watch-list issues for falling below the market cap threshold — which took effect July 1 this year — will remain in place as is," the exchange said. "However, given the potential for growing uncertainty among companies and investors as similar disputes spread, follow-up delisting procedures have not been pursued since Friday and will continue to be suspended going forward."

As of Wednesday afternoon, 19 Kospi-listed companies and 40 Kosdaq-listed companies had been placed on the watch list for failing to meet the market cap threshold, excluding those already under a trading halt. These companies will remain on the watch list until further action is taken, but will not advance to the next stage — such as a trading suspension — meaning their shares will continue to be traded on the market.

However, the exchange added that trading halts will remain in effect for companies whose delisting had already been decided before Friday.

Those companies are Jooyontech and SHD on the Kospi, and Silla SG, Gold&S, Kmpharmaceutical, Pintel, Sejin T.S and A.F.W on the Kosdaq — eight companies in total.

Earlier, the 51st Civil Division of the Seoul Southern District Court on Friday granted injunction requests filed separately by Jooyontech and Kmpharmaceutical against Korea Exchange, seeking to suspend the effect of their delisting decisions.

The court was reported to have taken issue with a provision under which a company placed on the watch list for falling below the market cap threshold would be delisted if it failed to stay above the threshold for 45 consecutive trading days within a 90-trading-day window.

The court also found that moving up the effective date of the tightened market cap standard — originally set for January next year but brought forward to July this year — had undermined the principles of proportionality and predictability.

Korea Exchange said the court had taken the position that "it is difficult to readily conclude that the market cap standard itself is improper in purpose, unsuitable in means, or excessive in the threshold amount," adding that the court's main concerns centered on guaranteeing listed companies' right to participate in the objection process and on the early application of the new standard.

With the injunctions granted, the delisting decisions for Jooyontech and Kmpharmaceutical are suspended until a final ruling is issued in the main lawsuit, and liquidation trading procedures will not proceed in the meantime.

In the main lawsuit, Kmpharmaceutical plans to argue, among other points, that it was not given a sufficient opportunity to recover under the tightened market cap standard. The company also intends to raise as a key issue whether it is appropriate to use market capitalization — a market indicator that a company cannot directly control through its own efforts — as a basis for delisting.

The number of companies placed on the watch list is expected to keep rising for now, however.

Under the tightened rules that took effect in July, Kospi-listed companies are placed on the watch list if their market cap falls below 30 billion won ($22.3 million) for 30 consecutive trading days, while the threshold for Kosdaq-listed companies is 20 billion won. The court found no problem with the application of this rule.

"The court dismissed the request to suspend the watch-list designation and granted only the request to suspend the delisting decision," the exchange said.

A separate rule that also took effect in July — requiring the delisting of penny stocks trading below 1,000 won per share — will remain in place as is. As of Wednesday, six Kospi-listed companies and 32 Kosdaq-listed companies were on the watch list due to their share prices falling below that threshold.

As a result, companies placed on the watch list for failing to meet the share price threshold, as well as the market cap threshold, are expected to continue through the delisting process.


jiyun@heraldcorp.com