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Newsletter | April 2017, Issue 1
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SECURITIES
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To Attract Growing High-Tech Companies, the FSC Reforms the Korea Stock Exchange KOSDAQ Listing and Public Offering Rules
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On October 5, 2016, the FSC announced measures to reform the listing and public offering systems, to make it easy for companies with high growth potential to meet their funding needs through the KRX KOSDAQ market. To reflect these measures, the KRX KOSDAQ Listing Rules have been amended as of January 1, 2017. In the first quarter of 2017, the FSC, in order to accommodate the new KRX KOSDAQ Listing Rules, plans to amend the Enforcement Decree of the Financial Investment Services and Capital Markets Act.
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Details:
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Under the reform measures, a company is allowed to apply for preliminary listing assessment if its initial public offering advisor (the “IPO Advisor”) recognizes its growth potential and recommends it for listing. However, to hold the IPO Advisor accountable for such a recommendation, the company must grant put-back options to general investors, who subscribe for its shares through the listing. The put-back options must be exercisable for six months following the listing.
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Also, these reform measures make it possible for a company to be listed on the KOSDAQ market even if it earns no net income yet, so long as it has a sufficient growth potential, and has market capitalization above a specific threshold (i.e., meeting the so-called “Tesla listing conditions”). If a company is listed as such, it can be exempt from the minimum revenue and ongoing business loss requirements for five years from the date of the listing, with which listed companies must comply to remain listed.
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To strengthen its IPO Advisor’s accountability, however, the reform measures also require the company to grant put-back options to general investors, who subscribe for its shares, and the put-back options must be exercisable for three months following its listing.
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Additionally, if a company applying for listing is large and has outstanding management performance, the reform measures allow a fast-track process by shortening the period of reviewing its listing application to 30 days (from 45 days).
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Significance / Potential Impact:
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The reform measures and related amendments are expected to increase IPO’s of companies with sound business ideas and technologies during their early growth stages. However, as their IPO Adviser and accounting firms will need to assume higher accountability than in the past, it would be worthwhile to monitor practical impacts of these reform measures and the related amendments may have on the market.
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