[Edaily Reporter Shin Ha-yeon ] As the criteria for maintaining a KOSDAQ listing have been tightened, companies with low market capitalizations are moving to expand their market capitalization through rights offerings. While some companies have exceeded the threshold following the listing of new shares from these offerings, there are also cases where companies find themselves on the verge of being designated as “monitored stocks” even before the new shares are listed.

According to the Financial Supervisory Service’s Electronic Disclosure System (DART) on the 5th, there were a total of 126 disclosures regarding KOSDAQ companies’ decisions to conduct paid-in capital increases from July 1 through the 2nd of this month, excluding duplicate disclosures resulting from corrections.

When market capitalization was calculated by multiplying the closing price on the trading day immediately prior to the announcement of the capital increase decision by the number of shares outstanding before the increase, 70 of these announcements—accounting for 55.6% of the total—were from companies with a market capitalization of less than 30 billion won. Announcements from companies with a market capitalization of less than 20 billion won—the current listing maintenance threshold—alone totaled 48 (38.1%).

The KOSDAQ market capitalization requirement for maintaining listing status was raised from 15 billion won to 20 billion won in July of this year. Although the threshold was originally scheduled to be raised further to 30 billion won starting in January of next year, the government postponed the effective date by six months to July of next year, taking into account market conditions and the time needed for companies to adjust. If a company falls below the threshold for 30 consecutive trading days, it is designated as a “monitored stock”; if it subsequently fails to maintain a market capitalization above the threshold for 45 consecutive trading days within the following 90 trading days, it becomes subject to delisting.

For companies with low market capitalization, if it is difficult to recover to the threshold within a short period, issuing new shares can be a means to increase market capitalization. Since market capitalization is calculated by multiplying the share price by the number of shares outstanding, market capitalization increases when new shares are listed, even if the share price remains unchanged.

In fact, KESPION(079190)was designated as a “monitored stock” on August 20 due to falling below the market capitalization threshold, but recently listed additional shares from a rights offering worth 13 billion won. Based on the closing price on the day before the new shares were listed, its market capitalization increased to approximately 25.9 billion won, exceeding the current threshold of 20 billion won. Companies such as WING YIP FOOD HOLDINGS GROUP(900340), Sonid(060230), and ISE Commerce Company Limited(069920), which had previously fallen short of the market capitalization threshold, also expanded their number of outstanding shares through rights offerings.

On the 2nd of this month, KS Industry(101000), with a market capitalization of 14.9 billion won, decided to conduct a third-party private placement to raise 4 billion won for operating expenses and debt repayment. This company had also been designated as a “monitored stock” due to its market capitalization falling below 20 billion won.

However, even if a company decides to conduct a rights offering, it may still be unable to avoid being designated as a “monitored stock” depending on the timing of payment and the listing of the new shares. On the 28th of last month, the Korea Exchange announced that Moadata(288980)had maintained a market capitalization below 20 billion won for 25 consecutive trading days. Since Moadata failed to meet the criteria by the 2nd of this month, the closing price on the 6th will be the final hurdle before designation as a monitored stock. The stock market will be closed on the 5th due to the substitute holiday for Gaecheonjeol.

Moadata is proceeding with a third-party private placement worth approximately 2 billion won. The company plans to issue 3,795,066 new shares to raise operating funds and change its largest shareholder. The payment date is the 6th, but the new shares are scheduled to be listed on the 23rd.

The effect of the rights offering alone is insufficient to bridge the gap between the current market capitalization and the threshold. Adding the new shares to the existing issued shares will bring the total number of shares to approximately 40.18 million. To meet the 20 billion won market capitalization requirement, the stock price must be at least 498 won. If the stock price remains in the low 200 won range as it has recently, the market capitalization will still fall short of 10 billion won even after the new shares are listed.

Thus, the rights offering does not guarantee that the company will meet the criteria for maintaining its listing. This is because there is a time lag until the new shares are listed, and the stock price could fall due to concerns about dilution of shareholder value. If the decline in the stock price exceeds the increase in the number of shares issued, the market capitalization could actually decrease.

Lee Hyo-seop, Director of the Financial Industry Division at the Korea Capital Market Institute, stated, “A company may have no choice but to opt for a rights offering to immediately avoid delisting,” but added, “If the purpose of the rights offering is to avoid delisting rather than to secure investment for corporate growth, dilution of share value is inevitable, and there is a high likelihood that the stock price will fall.”

He went on to emphasize, “Since a rights offering that fails to guarantee growth and profitability can lead to a prolonged decline in stock prices, retail investors need to exercise extreme caution,” adding, “Rushing into averaging down or engaging in margin trading could result in significant losses.”