FSC sets criteria for naming low-PBR firms, targeting bottom 25% on Kospi, 10% on Kosdaq over 3 years

The Financial Services Commission and Korea Exchange have finalized detailed criteria for a regime to publicly name companies with persistently low price-to-book ratios and are launching an official public comment process. The initiative aims to pressure companies whose share prices have remained well below their book value for an extended period — despite insufficient efforts to enhance shareholder value — into voluntarily improving their corporate value.

The FSC on Wednesday unveiled the detailed criteria for the low-PBR (price-to-book ratio) corporate disclosure regime. The system, a follow-up to the "capital market structural improvement plan" announced in March, operates on a "naming and shaming" basis, publicly releasing a list of companies that meet certain low-PBR thresholds.

Companies subject to disclosure are determined by calculating PBR on a semi-annual basis by market and sector, then identifying those that have ranked in the bottom 25 percent on the Kospi or the bottom 10 percent on the Kosdaq for three consecutive years.

To account for structural differences across industries, rankings are calculated separately for each of the 11 sectors under the Global Industry Classification Standard. PBR is computed using net assets from annual and semi-annual business reports, along with the 20-trading-day average market capitalization measured as of seven trading days before the disclosure date.

The FSC adjusted the threshold from an earlier proposal of "bottom 20 percent for one consecutive year" to "bottom 25 percent cumulatively over three years." The change reflects the time needed for corporate investment to bear results, while also preventing the number of named companies from falling too low, which prompted the upward revision of the percentage.

However, a company can be exempted from disclosure for one year if it files a corporate value enhancement plan that includes a low-PBR improvement strategy. Korea Exchange plans to prepare a dedicated disclosure form requiring cause analysis, target-setting, improvement plans and performance evaluations, to prevent companies from filing purely perfunctory disclosures.

By contrast, companies that have remained in the bottom tier by market and sector for six consecutive years will be excluded from the exemption even if they file such a plan.

Disclosures will be made on the first trading day of each May and November through the Korea Exchange's disclosure website, and a "low-PBR" tag will also appear next to stock names on brokerage HTS and MTS platforms. The exchange also plans to provide financial indicator trends and disclosure histories for named companies on its website to help investors make informed decisions.

Korea Exchange will also offer briefings and consulting to companies subject to disclosure, and plans to incorporate PBR-related factors into delisting reviews and the stewardship code. A low PBR ratio will not itself be added as a delisting ground; rather, it will serve as one consideration when a review has already been initiated.

According to a preliminary simulation by Korea Exchange, between roughly 120 and 220 companies — approximately 5 to 10 percent of all listed firms — are expected to be subject to disclosure once the regime takes effect.

The FSC and Korea Exchange will begin pre-announcing amendments to related regulations and rules next week, with a public comment period running through Aug. 24. The regime will then be finalized following votes by the Securities and Futures Commission and the FSC in September, with the first disclosure scheduled for Nov. 2.