Trading of Samsung BioLogics shares was suspended on the KOSPI stock market on Nov. 14 following the conclusion of the Securities and Futures Commission (SFC), which is under the Financial Services Commission, that the company intentionally committed accounting fraud in 2015.
The SFC filed a request with the prosecution to investigate into the accounting fraud, while imposing a penalty of 8 billion won on the company and advising it to dismiss its CEO.
The commission’s action against Samsung BioLogics also made the company subject to a delisting review by Korea Exchange (KRX).
However, stock analysts say there is little likelihood that Samsung BioLogics is delisted. They say trading of the company’s stock could be resumed in about a month and a half at the earliest.
Under the KRX regulations, a company becomes subject to a delisting review when the amount of money involved in an accounting irregularity exceeds 2.5% of the company’s equity capital. The amount of the valuation gains that Samsung BioLogics earned through the accounting fraud is worth more than 2 trillion won, far exceeding 2.5% of its equity capital of 3.8 trillion won.
The screening committee of Korea Exchange will review the case for 15 business days to determine whether Samsung BioLogics qualifies the delisting requirements or, if it does not, how long its shares should be suspended from trading. The review period could be extended for another 15 days if the committee needs additional investigation.
If the screening committee cannot make a decision on delisting of Samsung BioLogics, Korea Exchange will convene the Corporate Audit Committee within 20 days. The panel is supposed to decide, within seven days, on whether to delist the company or grant it a period to improve its accounting practices.
The period of trading suspension for Samsung BioLogics stocks could thus range from a minimum 15 business days to a maximum 57 business days.
Yet the period could be extended to a maximum one year if the review panel decides to set an “improvement period” for Samsung BioLogics. The panel’s delisting review on the company is resumed after the improvement period is finished.
Stock experts believe that Samsung BioLogics is unlikely to be delisted. The requirements for delisting include failure to submit regular reports, capital erosion, insufficient share distribution, insufficient transaction volume, and poor governance structure. Accounting fraud is not included here.
Kim Yong-beom, FSC vice chairman and head of the SFC, said, after announcing the commission’s verdict on Samsung BioLogics, “Since Korea Exchange introduced the current delisting examination system in 2009, 16 companies have been subject to a delisting review. But none of them have been delisted due to accounting fraud.”
Kim’s remark was intended to relieve investors who were worried about a possible delisting of Samsung BioLogics.
"The message we have consistently sent to investors through reports is that Samsung BioLogics is unlikely to be delisted," said Jin Hong-guk, a researcher at Korea Investment & Securities. He reminded that Daewoo Shipbuilding & Marine Engineering and Korea Aerospace Industries were not delisted even though they were found to have fabricated their accounting books.
Jin also pointed out that the stock price of Samsung BioLogics rose sharply for two days before the SFC’s announcement. “Some investors were betting that the company will not be delisted,” he said.
Meanwhile, Samsung BioLogics issued its statement on Nov. 14, saying that it did not violate the corporate accounting rule. It said it would file an administrative lawsuit against the SFC.