Seven in 10 low-PBR firms yet to disclose value-up plans ahead of November listing

With the first public list of low price-to-book ratio companies set to be released in November, seven out of 10 firms expected to appear on it have yet to disclose corporate value enhancement plans. Listed companies find themselves in a bind: avoiding the low-PBR list requires filing such a plan, but doing so means committing to medium- and long-term targets that shareholders will expect them to meet.

According to the financial investment industry, Korea Exchange began Monday allowing listed companies to check whether they meet the low-PBR criteria through its listed-company disclosure submission system. Companies can log in with their disclosure officer's account to view only their own low-PBR status and sector-level PBR figures — not those of other firms. The system displays low-PBR eligibility calculated as of each May and November.

While only the individual company can currently see its own results, the full list of low-PBR firms will be made public starting Nov. 2. Korea Exchange plans to identify qualifying Kospi and Kosdaq companies and post the list on KIND, its corporate disclosure platform. It will be the first time such a list has been released to the public.

Low-PBR firms are selected by market and Global Industry Classification Standard sector. Companies that have ranked in the bottom 25 percent on Kospi or the bottom 10 percent on Kosdaq for all six half-year periods over the past three years are included. The most recent PBR figure used for the Nov. 2 list will be calculated using net assets from this year's half-year reports and the average market capitalization over 20 trading days from Sept. 21 through Oct. 22. There is a way off the list: companies that meet the low-PBR threshold can be excluded from the public disclosure if they file a corporate value enhancement plan and attach a separate "PBR improvement plan" by Oct. 22.

Most expected candidates, however, have yet to act. A review of disclosure records for 204 low-PBR candidates identified by Samsung Securities through its own simulation in late July found that only 57 of the 203 remaining companies — after excluding delisted Syswek — had filed a full corporate value enhancement disclosure, accounting for 28.1 percent. The remaining 146, or 71.9 percent, had not filed as of Tuesday.

For companies, appearing on the low-PBR list is a burden, but so is filing a value enhancement plan to avoid it. A strategy planning official at one listed company said that even in disclosure education sessions, the public naming of low-PBR firms was described as a form of "public shaming." "Being selected does not result in sanctions, but having your company's name appear on KIND in an unflattering context is itself a burden," the official said. Among practitioners at listed companies, there are also concerns that appearing on the list could signal to the market that a company has given up on managing its share price.

On the other hand, filing a value enhancement plan means the company must continually be mindful of whether it is living up to the goals and commitments it has made to shareholders. An official at another listed company said: "Once you disclose a value enhancement plan, the company has no choice but to work toward fulfilling it, and whether you follow through becomes critical. Since it is something announced to shareholders, failing to deliver invites criticism — and that is a burden for the company."

However, a company will not be designated as an insincere disclosure entity simply for failing to meet the targets set out in its plan. A Korea Exchange official explained that missing a self-set target alone is not grounds for such a designation, and that companies may be exempt from insincere disclosure rules if they provide a reasonable basis for their projections and follow the disclosure procedures for forward-looking information under exchange regulations.

Value enhancement measures are also not limited to shareholder returns. Companies may propose research and development investment, profitability expansion or growth initiatives. A Korea Exchange official said the appropriate approach to value enhancement may differ depending on a company's characteristics, stage of growth, sector and market strategy, adding that companies need to fully explain to shareholders and investors the reasons and objectives behind decisions such as increasing shareholder returns or expanding investment.