One in 10 Kosdaq firms falls short of tougher delisting rules as 178 companies miss market cap threshold

As tougher Kosdaq delisting rules take effect Tuesday, roughly one in 10 listed companies on the junior market has been found to fall short of the stricter listing-maintenance standards.

According to Korea Exchange, 178 Kosdaq-listed companies — excluding special purpose acquisition companies and preferred shares — had a market cap below 20 billion won ($13 million) as of Monday. That represents about 10 percent of the total 1,748 companies on the exchange.

The figure has nearly tripled from 66 companies at the start of this year. Analysts attribute the surge to a near-10 percent drop in the Kosdaq index, which fell from 945.57 in early January to 851.37 on Friday, dragging market capitalizations down with it.

The number of so-called penny stocks — shares trading below 1,000 won — also stood at 180, accounting for roughly 10 percent of Kosdaq-listed companies excluding SPACs and preferred shares. Their combined market cap totals 6.14 trillion won.

Financial authorities will enforce the tightened delisting regime starting Tuesday. Under the new rules, a company will be designated a "Caution" issue if its share price falls below 1,000 won for 30 consecutive trading days, or if its market cap stays below 20 billion won for the same period. If the company then fails to recover for at least 45 consecutive trading days out of the subsequent 90 trading days, delisting proceedings will begin.

Companies must satisfy both the share price and market cap requirements, as failing either one alone is sufficient grounds for delisting.

The new rules also block companies from using par value consolidation as a technical workaround for the penny-stock threshold. Even if a company with a par value of 500 won and a share price of 300 won consolidates its par value to 2,000 won — lifting the share price to 1,200 won — it will still be subject to delisting if the post-consolidation price falls below the new par value.

The market cap threshold for maintaining a Kosdaq listing will rise from the current 15 billion won to 20 billion won, and will increase again to 30 billion won in January next year.

Delisting review criteria will also be tightened across the board. The full capital impairment rule, previously applied only at fiscal year-end, will be expanded to cover half-year periods as well. The disclosure-violation threshold for delisting will be lowered from an accumulated penalty score of 15 points to 10 points over the past year, and a single serious or intentional disclosure violation will be enough to trigger a review. The maximum improvement period granted to companies during the Kosdaq substantive review process will also be shortened from 18 months to one year.

A Korea Exchange official said a wave of delistings is unlikely to hit immediately in July, noting that companies placed on the Caution list are still given a set period to demonstrate improvement before further action is taken.

Industry insiders say the market cap requirement will weigh more heavily on companies than the share price rule.

An official at one Kosdaq-listed company said penny stocks can be addressed through measures such as capital reduction without compensation or share consolidation to push up the price, but meeting the market cap threshold is far harder without a genuine rise in share value. "Mergers and acquisitions are also not easy to pursue in a short time frame, so if the Kosdaq slump continues, the number of companies failing to meet the market cap standard is likely to grow," the official added.

Hyungji Innovation and Creative offers a telling example. The company carried out a 10-to-1 share consolidation in March, pushing its share price to nearly 4,000 won, yet its market cap remains at around 10.6 billion won — well below the new threshold. The case illustrates how a company can temporarily satisfy the share price requirement while still struggling to meet the market cap standard.

Investors should also exercise caution. A wave of capital reductions and share consolidations aimed at meeting listing-maintenance requirements could follow, and share price volatility may increase as more companies are placed on the Caution list.