South Korea acts to expedite delisting, target ‘zombie’ companies

The Korea Exchange building situated in Yeouido, Seoul./News1

There have been concerns that the lengthy process of removing companies from the stock market is violating investors’ property rights and causing disruptions in fund circulation. South Korean financial regulators are now looking into ways to speed up this delisting process, particularly to remove ‘zombie’ companies from the market early.

As of Feb. 14, the Korea Exchange reported that a total of 70 stocks were not trading on the KOSPI and KOSDAQ markets due to reasons such as delisting. Excluding short-term suspensions due to factors like special purpose acquisition companies (SPACs) or stock splits, the average suspension period was 469 days.

In 2009, the Korea Exchange introduced the substantive review system for delisting. However, instances of companies being given improvement periods to address delisting issues have led to extended suspension periods, especially when combined with ongoing lawsuits. Currently, there are 11 companies with suspension periods exceeding 1000 days, with 9 of them listed on the KOSDAQ, outnumbering those on the KOSPI (2 companies).

For example, ARION Technology, listed on the KOSDAQ, had its trading suspended on March 19, 2020, due to an audit opinion refusal. ARION was given a one-year improvement period until April 2021 but failed to resolve the delisting issues during that time. Consequently, delisting was decided in November 2021. However, ARION conducted a capital reduction without refund during the suspension period but did not apply for modified listing, causing further delays.

The Korea Exchange explained, “Modified listing was necessary due to changes in the number of listed shares caused by the capital reduction, to proceed with delisting procedures such as liquidation trading. However, since the company has closed down, further procedures are not being pursued.” As of Feb. 19, ARION’s suspension period is 1433 days.

Incheon National University Business Professor Hong Ki-yong pointed out, “Delayed delisting procedures could hinder investors from smoothly exiting their investments, potentially violating their property rights and causing them to miss other investment opportunities.” Hwang Sei-woon, a senior research fellow at the Korea Capital Market Institute (KCMI), emphasized the importance of promptly managing delistings for appropriate companies, as it allows “funds previously invested there to be redirected to other enterprises, thereby boosting market dynamism.”

A senior financial authority told The Chosunilbo, “We are currently discussing with the Korea Exchange to expedite delisting procedures.” Efforts are being made to shorten the delisting process, even in cases where companies like ARION fail to cooperate and avoid delisting.