'Delisting Fear' Hits 63 Companies... Mass Notices for Falling Below Market Cap and Penny Stock Thresholds

Warning of Management Designation Issued for 16 KOSPI and 47 KOSDAQ Companies
More Listed as Penny Stocks than for Failing Market Capitalization Criteria

With the full implementation of the penny stock requirement—where share prices fall below 1,000 won—the number of listed companies receiving advance notice of designation as management issue stocks surged in just one day to twice the level of the entire previous month. In the current environment of intensified supply-demand imbalances and heightened stock market volatility, concerns are emerging that small- and mid-cap stocks could be forced out of the market.

According to the Electronic Disclosure System (DART) of the Financial Supervisory Service on August 6, a total of 63 listed companies received "advance warning of designation as a management issue" the previous day due to either insufficient market capitalization or falling under the penny stock requirement for common shares priced below 1,000 won.

The number of companies receiving advance warning of possible management issue designation is rapidly increasing. In June, only six companies received such warnings; last month, this rose to 34. A company is officially notified when conditions such as failing to meet the market capitalization requirement for 25 consecutive trading days persist. Of the 63 companies notified this time, if they fail to achieve a price rebound or increase their market capitalization during the remaining five trading days until August 12, mass designation as management issues will become a reality.

This surge in preliminary management issue designations results from the strengthening of delisting criteria starting last month. The financial authorities raised the minimum market capitalization requirement from 20 billion won to 30 billion won for KOSPI, and from 15 billion won to 20 billion won for KOSDAQ. The penny stock requirement also came into effect during the same period, with the previous day marking 25 trading days since its introduction. If a listed company fails to meet the market capitalization criteria for 30 consecutive trading days, or if its price remains in penny stock territory, it is immediately designated as a management issue. If, following such designation, the company continues for 45 out of 90 trading days in the same condition, it will ultimately proceed to delisting.

More companies received warnings due to the penny stock requirement than for insufficient market capitalization. Of the 63 companies, 50 failed to break out of prices below 1,000 won—nearly four times the number of companies (13) that failed to meet the market capitalization requirement.

KOSDAQ companies accounted for 47 of the companies receiving management issue warnings, about three times more than the 16 in KOSPI. The majority of these companies met the market capitalization standard but had share prices below 1,000 won. Among KOSPI companies, 10 out of 16 could not escape penny stock status, while in KOSDAQ, this was the case for 40 out of 47, putting them at risk of management issue designation.

Since the introduction of the penny stock requirement, there has been a sharp increase in the number of companies resorting to reverse stock splits. As of the previous day, 181 listed companies had announced reverse stock splits this year—more than 20 times the eight that did so during the same period last year. Just last month, after the penny stock requirement was applied, 34 companies moved to initiate reverse stock splits.

Among the 63 companies, there were some that failed to meet both the market capitalization and penny stock requirements. On KOSPI, Ontide is the only company that failed to satisfy either criterion and is now considered the number one candidate for delisting. On KOSDAQ, four companies—Woori Enterprise, E8, Moa Life Plus, and Hyeongji Global—are likewise continuing in a situation where both their market capitalizations are below 20 billion won and their stock prices remain under 1,000 won.

In this context, some argue that the tougher delisting rules may be excessive. Eom Sujin, a researcher at Hanwha Investment & Securities, commented, “Amid a strong supply shift to the semiconductor sector and severe volatility, small- and mid-cap stocks are being sidelined regardless of their performance or fundamentals. Rather than making delisting conditions stricter, raising the bar for new listings would likely reduce cases of companies falling below market capitalization or share price requirements.”

Meanwhile, according to the Korea Exchange, the previous day saw 170 companies—36 on KOSPI and 134 on KOSDAQ—with share prices ending in penny stock territory. These companies accounted for 3.8% and 7.4% of all KOSPI and KOSDAQ listed companies, respectively.

This content was produced with the assistance of AI translation services.