The number of KOSDAQ-listed stocks trading below 1,000 won has nearly halved in the 100 days since South Korea tightened its delisting rules. But seven out of 10 companies that climbed above the threshold did so through share consolidation, suggesting that many responded to the delisting risk by cutting their share count to lift per-share prices rather than by improving corporate value.
An analysis of Korea Exchange price data for all listed stocks showed that KOSDAQ issues trading below 1,000 won fell to 82 as of the 12th from 150 on July 1, a drop of 68, or 45.3%. Over the same period, stocks with a market capitalization below 20 billion won declined to 185 from 227, a drop of 42, or 18.5%. Excluding overlaps, the number of stocks failing at least one of the two criteria fell to 231 from 318, down 87, or 27.4%. The number of KOSDAQ issues covered by the analysis was unchanged at 1,821.
The Korea Exchange toughened its delisting standards for penny stocks and companies falling short on market value on July 1. A stock that trades below 1,000 won for 30 consecutive sessions is designated as an issue under administrative watch, and if it fails to close at or above 1,000 won for 45 straight sessions within the following 90 days, it enters delisting proceedings. The market capitalization threshold was also raised to 20 billion won. The analysis compares closing prices and market values on the two dates, so the figures differ from the number of companies that actually met the criteria for administrative designation or delisting.
What stands out is how closely the decline in penny stocks is tied to share consolidation. Of the 150 issues trading below 1,000 won on July 1, 86 had risen above that level by the 12th. Of those, 63, or 73.3%, underwent a change in listing details — an administrative update of their listed share count — following a share consolidation during the period. Only 23 climbed above 1,000 won without consolidating their shares. Among the remaining former penny stocks, 57 were still trading below 1,000 won and seven were excluded from the day's price data because of trading suspensions or other reasons.
Camsys shares rose to 5,070 won on the 12th from 862 won on July 1. Over the same period, Coasia CM went to 3,380 won from 860 won, East Aid to 2,025 won from 591 won, and SDN to 5,060 won from 917 won. None of those moves can be read as share price gains, however, because all four companies carried out share consolidations. A consolidation merges multiple shares into one to reduce the number of shares outstanding, lifting the per-share price without increasing corporate value itself.
A securities industry official who asked not to be named said the penny stock standard can be met through a share consolidation alone, raising doubts about its effectiveness. The official added that because some of these companies have solid earnings and balance sheets, exemptions that take account of a company's underlying competitiveness are needed.
A court has blocked delisting proceedings based on insufficient market capitalization, but the penny stock rules still apply as before. Some argue that regulators should consider streamlining the relisting process for companies that meet certain conditions. Lee Hyo-seob, head of the financial industry division at the Korea Capital Market Institute, said he agrees with the broader direction, noting that the KOSDAQ market over the medium to long term holds many companies with weak profitability and growth prospects, making it necessary to weed out troubled firms. Still, he said investors should be able to keep trading shares on the over-the-counter K-OTC market even after a delisting, to protect them.