South Korea to tighten delisting rules to remove ailing firms

South Korea will sharply raise the threshold for listed companies to remain trading on the domestic stock market to facilitate the delisting of financially troubled companies, top regulators announced in a joint statement on Monday.

Under the new rules, companies listed on the Kospi main bourse are required to maintain a minimum market capitalization of 50 billion won ($35 million) by early 2028. Otherwise, they will be removed from the Korea Exchange.

That represents a tenfold increase from the current threshold of 5 billion won.

For companies trading on the Kosdaq junior market, the minimum market capitalization will be raised to 30 billion won from the current 4 billion won. They also need to meet the requirement by early 2028.

The revised regulations were unveiled by the Financial Supervisory Service (FSS), Financial Services Commission (FSC), Korea Financial Investment Association and Korea Exchange.

MINIMUM REVENUE REQUIREMENTS

The regulatory bodies will also toughen minimum revenue requirements.

Kospi-listed firms must boost annual sales to 30 billion won by early 2029 to avoid delisting. Those trading on the Kosdaq should raise their sales to 10 billion won by the same deadline.

Currently, the threshold for their sales is 5 billion won and 3 billion won, respectively.

However, the revenue rules will not apply to Kospi-listed companies with a market cap of 100 billion won or more and Kosdaq-traded firms with a market cap of 60 billion won or more.

It marked the first revision to the relevant rules in 22 years.

“South Korea's stock market has easier listing requirements compared with other major stock exchanges, while the delisting process takes longer,” said an FSC official.

From 2019 to 2024, an average of 99 companies went public either on the Kospi or Kosdaq annually. The tally excluded real estate investment trusts and special purpose companies.

By comparison, the number of delisted companies stood at an average of 25 during the same period.

As of the end of 2024, trading in 83 companies has been suspended by the Korea Exchange. However, they are still included in the calculation of stock market cap, weighing down the broader stock market indices.

SHORTER DELISTING PERIOD

Under the revised rules, some 199 companies will be delisted in 2029, said regulatory officials. The regulators will also shorten the delisting period.

The figure breaks down to 62 companies on the Kospi and 137 on the Kosdaq, representing 8% and 7% of the number of stocks traded on their respective stock markets.

Additionally, South Korea will step up accounting oversight rules to prevent companies from manipulating financial results to avoid delisting.

It will also tighten investigations into companies that remain after hiving off major businesses and listing them to determine whether the remaining entities meet the listing qualifications.

From 2029, delisted companies will be allowed to trade in a designated section of the over-the-counter (OTC) market operated by the Korea Financial Investment Association for six months.

Some of them may continue to trade on the OTC market if they meet the conditions set by the KOFIA.

Write to Han-Gyeol Seon at always@hankyung.com

Yeonhee Kim edited this article.