Korean companies went through many difficulties in 2019. As the 2019 earnings announcement season approaches, much attention is being paid to whether companies designated as issues for administration will be delisted.
Companies that recorded operating losses over the last five business years are subject to a listing eligibility review. Some stock market experts point out that companies that posted a net loss before income tax exceeding 50 percent of equity capital in three of their four business years including 2019, will be delisted without a review. Investors are advised to pay particular attention to these stocks.
According to the Financial Supervisory Service on Jan. 14, seven KOSDAQ-listed companies recorded operating losses in the first three quarters of 2019 following consecutive losses in 2015 to 2018. Eleven companies including Digital Cellbas Health Care posted more than 50 percent as the proportion of their net loss before income tax in their owner’s equities in two of the three business years from 2016 to 2018 and net loss before income tax in the first three quarters of 2019. Luxl satisfies the two conditions. Their 2019 annual business results including their fourth-quarter results will determine whether or not they will be delisted.
Companies facing delisting sought to raise capital through capital increases and asset sales last year without exception. The higher the net loss to net worth ratio is, the greater the burden of capital expansion and earnings improvement is. Terrasem posted 3.4 billion won (about US$2.9 million) in net loss before income tax against its net worth of 2.3 billion won so its net loss to net worth ratio hit 149.6 percent. The company received about 1 billion won (about US$860,000) on Oct. 25 and about nine billion won (about US$7.8 million) on Dec. 30 through a capital increase for third-party allotment. Actionsquare, which recorded 127.4 percent, increased capital 17 billion won (about US$14.7 million) on Nov. 25 using the same method as Terrasem.
Luxl decided to sell off 250,000 shares in Aribio, a pharmaceutical and health food company, at 14 billion won (about US$1.2 million) at the end of last year. But the five billion won (about US$1.2 million) raised through a capital increase for third-party allotment will come in on Feb. 26 of 2020 instead of the originally planned Dec. 18 of 2019. The company posted 10.1 billion won (about US$8.7 million) in net loss in the first three quarters of 2019, amounting to 41.3 percent of its equity capital. Its operating loss amounted to 2.3 billion won (about US$2 million).