False Disclosures Stymie Kosdaq

A Total of 16 Firms Shown the Doors This Year, Twice as Many as Last Year

By Park Hyong-ki

Staff Reporter

Kosdaq, the tech-heavy bourse, is beset by false disclosures and the slow economy, and has shown 16 listed companies the door in recent months.

According to the Korea Exchange (KRX) and the Kosdaq Listed Companies Association, a total of 16 companies have been de-listed since the beginning of this year, more than double that of last year. As of last week, 1,022 companies are listed on Kosqaq.

The exchange cited companies' capital erosion on poor balance sheets as the No.1 reason why most were taken off the Kosdaq, which boasts of being the world's third-largest junior market for small venture start-ups. In terms of market capitalization, the Alternative Investment Market of the United Kingdom is the biggest, followed by the Shenzhen Stock Exchange's SME Board of China.

Further undermining its credibility is that a number of firms are considering avoiding the tech-loaded market, and attempting to list on the main bourse, which is less volatile. So far, Asiana Airlines and LG Telecom, two of the top blue-chips, have moved to the KOSPI for stability and liquidity.

Analysts attribute the increased de-listing mainly to economic slowdown, which is weighing down companies profitability going forward. Also, most were de-listed as they failed to meet strict rules on capital soundness adopted by financial authorities and the exchange three years ago.

``Their time was up for improvement,'' said an official at the exchange, adding that they had three years to make up for capital losses.

However, with rising oil prices and a weakening won, Kosdaq ventures found it more difficult to make ends meet, and stay on the junior market.

De-listed firms consist of mobile communications, software developers and electronics manufacturers, the exchange said.

The number of de-listed companies had dropped to 10 in 2006, down from 40 a year earlier, but began to climb again last year.

The association noted that since 2000, the number of de-listed companies has totaled over 200.

Of these, 140 companies were kicked off the market due to poor balance sheets _ 55 of them were removed following recommendations by outside auditors.

All listed companies are required to have their balance sheets regularly checked by auditors for capital soundness, and monitored for accounting fraud. Should they find any data indicating poor track records in corporate accounts, auditors can recommend de-listing.

Although the exchange is moving to ease listing procedures, at the same time it is strengthening rules on de-listing to maintain market quality.

Given that the junior market mainly lists small- and medium-sized enterprises and venture start-ups, they sometimes find it hard to maintain sufficient capital as they are more vulnerable to external and internal factors than big firms, which are usually on the main bourse.

The KRX said those that have been removed were mostly broadcasting and mobile communications companies over the years. Software developers and cable operators have also had difficulties in staying on the market, followed by computer system facilitators.

Seeing foreign companies not performing so well is also troubling the junior market. The exchange has listed three Chinese firms on the KOSPI and Kosdaq last year. 3NOD Digital Group, a Chinese digital audio manufacturer, listed its shares on the Kosdaq, while Huafeng Textile became the first foreign company to be listed through depository receipts on the main bourse. Cowell Holdings, a producer of camera modules for mobile phones, is the second Chinese listing on the Kosdaq.

However, their stock prices are trading below market expectations and initial public offering prices, dampening the goal of attracting a large number of foreign companies to go public in Korea.

Early this year, the exchange said it was targeting 10 overseas companies for listing on the KOSPI and the Kosdaq markets by the end of this year as part of efforts to help Korea become a financial center.

Further undermining its efforts to maintain the Kosdaq's global competitiveness and internationalization are escalating unfair disclosure practices by companies, which contribute to high volatility.

The exchange has found 53 cases of irregular disclosures committed by Kosdaq-listed firms since January this year, compared with 11 cases on the main bourse.

In detail, the KRX has put 11 Kosdaq firms under watch, as they publicly disclosed false statements more than once this year. It did not indicate the names of the companies.

Filing false disclosures has been increasing since 2006 as the exchange and financial authorities eliminated rules stating that if a company intentionally discloses false business information three times within two years, they will be de-listed.

phk@koreatimes.co.kr