SOUTH Korea is tightening its delisting rules to kick out poor performers as part of a broader attempt to improve the quality of the stock market.
The market capitalisation requirement for stocks to remain on the main Kospi exchange will be raised from five billion won (S$4.7 million) to 20 billion won starting 2026, and to 50 billion won from 2028, according to the Financial Services Commission (FSC). The improvement period granted to Kospi firms after a delisting warning – currently as long as four years – will also be halved to accelerate the process.
Regulators have been striving to revive the stock market, with the most significant attempt being the “Corporate Value-Up” programme to boost share valuations. While stocks have struggled in 2024 largely due to the poor performance of market heavyweights such as Samsung Electronics, Tuesday’s (Jan 21) announcement aims to tackle structural problems such as delisting conditions that have been too lenient.
Firms with a market cap below 100 billion won will also face higher minimum revenue requirements, which is currently five billion won. The government will seek a gradual increase to take the threshold to at least 30 billion won starting in 2029.
“Delays in the delisting of low-performing companies have led to inefficiencies in capital allocation and have undermined market trust, also negatively affecting equity indexes,” the FSC statement said. The government is strengthening the criteria to “remove low-performance companies effectively and contribute to a ‘value up’ of the market”.
The current rule, with its low financial requirements, has failed to kick out zombie firms. No stock has been delisted over the past decade by falling below the market cap or revenue threshold, the FSC said. Based on 2024 data, 62 Kospi members and 137 Kosdaq firms fail to meet the strengthened standards, accounting for about 7 to 8 per cent of each market, according to the regulator.
The government also wants to avoid huge price swings following initial public offerings (IPOs). By 2026, companies should allocate at least 40 per cent of the shares to institutional investors that pledge a lock-up period, the statement said. Those who vow to hold shares for longer will be given an advantage in allocations.
The regulator will also strengthen qualifications for institutional investors that can participate in the book-building process, after overheated interest in some IPOs have led to inappropriate pricing. The IPO-related changes that can be implemented now will take effect starting in April, while those that need more preparation will start from July.
The Korean stock market has expanded in terms of the number of listed companies and market capitalisation but the quality of growth has fallen short, the financial regulator said. While the country saw the number of listed firms increase at a faster clip than in the US, Japan or Taiwan over the past five years, gains in the MSCI country index – at 3.8 per cent – far trails the at least 65 per cent rise witnessed in the above-mentioned markets, the statement showed. BLOOMBERG
