The financial authorities have announced an improvement plan for the IPO and delisting systems focusing on enhancing the quality of the stock market. To eliminate so-called ‘zombie companies,’ they plan to gradually raise the market capitalization threshold for delisting from the current 50 billion won to 500 billion won. Additionally, they intend to reform the IPO system, which has been criticized for inflated public offering prices causing dissatisfaction among individual investors, by strengthening the obligatory holdings of lead underwriters.
This new plan was introduced during a joint seminar on improving IPO and delisting systems for a sustainable capital market, held by the Financial Services Commission, the Financial Supervisory Service, the Korea Exchange, the Korea Financial Investment Association, and the Capital Market Research Institute. The main goal is to increase the qualitative level of the domestic stock market, ensuring the appropriate exit of poorly-performing marginal companies and alleviating irrational overheating in the IPO process.
To address the issue of price distortion in the IPO market due to a focus on short-term profit investments, the authorities will introduce a priority system for commitment-holding institutional investors and expand incentive points. At least 40% of institutional investor allocations will be prioritized for these committed investors, and if less than 40% is fulfilled, the lead underwriter must purchase 1% of the public offering shares and hold them for six months.
In addition to enforcing a commitment-holding period for policy funds like high-yield funds, the authorities will impose penalties for violations, primarily by restricting participation in demand forecasting. They are also planning to reform the incentive system to prevent concentration of interest in the early stages of the IPO process.
The improvements to the IPO system also aim to reinforce the responsibilities of underwriters by strengthening the obligation to hold pre-acquired shares. The acceptable gap between the acquisition price by the underwriter and the public offering price will be reduced from 50% to 30%, and the minimum obligatory holding period will be extended from one month to three months. The authorities also plan to re-introduce the capital market law amendment, which was previously scrapped due to the expiration of the 21st National Assembly.
Regarding the delisting improvements, the focus is to strengthen requirements while simplifying procedures to aid the removal of zombie companies. The market capitalization and revenue requirements for KOSPI will increase to 500 billion won and 300 billion won, respectively, through a three-year phased approach. Similarly, KOSDAQ’s requirements will rise from 40 billion won and 30 billion won to 300 billion won and 100 billion won, respectively.
A new ‘two-strike’ rule will be implemented for cases of inadequate audit opinions, a reason which has been the leading cause for delisting in the past five years. The period for compliance improvement for KOSPI will be reduced from a maximum of four years to two years, and for KOSDAQ, from a maximum of three hearings and two years of improvement to a maximum of two hearings and 18 months.
Measures to protect investors, such as supporting unlisted stock transactions post-delisting and expanding information disclosure during delisting reviews, have also been included in the announcement. Chairman Kim emphasized the commitment to creating an efficient market structure that ensures investor protection.