[Edaily Reporter kyoungeun kim ] The government is set to intensify its comprehensive crackdown on undervalued companies listed on the KOSPI and KOSDAQ. Starting this November, companies with a “low PBR”—meaning their market capitalization is significantly lower than their net asset value—will be publicly identified by the stock exchanges. Furthermore, it is increasingly likely that the National Assembly will incorporate the so-called “PBR 0.8x rule”—which sets the lower limit for stock valuation under the Inheritance and Gift Tax Act at 80% of net asset value—into this year’s tax reform package. While experts agree with the intent of the measure, they unanimously stress that ensuring the criteria are sufficiently rigorous and conducting post-implementation compliance checks are key to guaranteeing its effectiveness.
According to the “Detailed Standards (Draft) for the Disclosure System for Low-PBR Companies” announced by the Financial Services Commission and the Korea Exchange on the 28th, companies falling within the bottom 25% (KOSPI) andthe bottom 10% (KOSDAQ) based on cumulative PBR data over the past three years (six half-years) will be designated as low-PBR companies, and a “Low-PBR” tag will be added to their stock names on securities firms’ home and mobile trading systems (HTS and MTS).

Based on a preliminary simulation conducted by the stock exchanges in May, it was estimated that between a minimum of 120 (80 on the KOSPI and 40 on the KOSDAQ) and a maximum of 220 (130 on the KOSPI and 90 on the KOSDAQ) listed companies would be affected.
The initial criterion of “being in the bottom 20% for one consecutive year,” proposed in March when the “Capital Market Structural Reform Plan” was announced, was subsequently refined during the stock exchanges’ working-level review to “being in the bottom 20% for two consecutive half-years.” However, in this final proposal, the criterion was further relaxed to “cumulative bottom 25% over three years (KOSPI),” taking into account the cyclical business cycles of each sector and the time required to visualize a company’s investment performance.
Currently, on the KOSPI, companies such as KYUNGDONG INVEST(012320)(Energy), HANWHA LIFE INSURANCE(088350)(Finance), Aprogen(007460)(Industrial Goods), KR MOTORS(000040)(Discretionary Consumer Goods), E-MART Co., Ltd.(139480)(Essential Consumer Goods), #AprogenBio (Healthcare), and KEC HOLDINGS(006200)(Information Technology) are ranking at the bottom, while on the KOSDAQ, companies such as The LEADCORP, Inc.(012700)(Energy), MOORIM SP CO., LTD.(001810)(Materials), CT property(052300)(Industrial Goods), TK CHEMICAL CORPORATION(104480)(Discretionary Consumer Goods), and DONGWOO FARM TO TABLE CO., LTD(088910)(Essential Consumer Goods) are also ranking at the bottom. As these companies have generally remained in the bottom tier based on the end of the most recent three fiscal years, they are highly likely to be classified as “low PBR” companies.
If a company discloses a corporate value enhancement plan that includes measures to address its low PBR, the disclosure requirement is deferred for one year (two half-years); however, if the company remains in the bottom tier on a cumulative basis over six years (12 half-years), it will no longer be eligible for this exemption. The Korea Exchange plans to begin a public notice period for the revision of its regulations and bylaws starting on the 5th of next month, solicit public comments through August 24, and proceed with the first public announcement in November as scheduled, following approval by the Securities and Futures Commission and the Financial Services Commission in September.
At the same time, the National Assembly is rapidly advancing measures to address low PBRs through amendments to the Inheritance and Gift Tax Act. The amendment bill, proposed by Representative Lee So-young of the Democratic Party of Korea in May of last year, stipulates that if a listed company’s market capitalization falls below 80% of its net asset value, the stock should be valued—as with unlisted shares—to reflect its asset and earnings value, with 80% of net asset value serving as the lower limit. It is also known as the “Stock Price Suppression Prevention Act.”
Under current law, shares of listed companies are valued based on the average market price over the two months before and after the effective date of inheritance or gifting, creating a structure where a lower stock price results in a reduced tax burden. As a result, suspicions have consistently been raised that major shareholders facing succession intentionally suppress stock prices to minimize their tax liability. At a legislative task discussion held on the 21st, Representative Lee So-young stated that the government plans to incorporate her original bill, with some modifications, into this year’s tax reform package. However, it is reported that the government is considering measures such as applying differentiated PBR standards by industry or allowing exceptions based on individual companies’ circumstances.
While both measures are extensions of the government’s “Value-Up” policy aimed at resolving the “Korea Discount,” they differ in nature: whereas the stock exchange’s public disclosure system exerts market pressure through “naming and shaming,” the amendment to the Inheritance Tax Act takes an approach that directly eliminates the incentive for major shareholders to evade taxes.
PBR-related indicators are also expected to be incorporated into the revised Stewardship Code guidelines and the criteria for substantive delisting reviews. However, given that this is a voluntary disclosure system without mandatory enforcement, some observers point out that discussions on making disclosures mandatory for low-PBR companies must continue.
Kang So-hyun, Director of the Capital Markets Division at the Korea Capital Market Institute, suggested, “Under the current voluntary disclosure structure, participation is concentrated on large, high-quality companies rather than low-PBR companies, which have a greater need for disclosure.” She added, “We should consider phased mandatory disclosure limited to low-PBR companies and large firms, but we must implement safeguards to ensure it does not devolve into mere formalities.”