[Beginner's Guide] EdisonEV Facing Delisting Threat Amid Eat-and-Run Controversy... What Does Delisting Mean?

[Image source=Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] Last week, the hottest issue in our stock market was undoubtedly Edison Motors. This was due to the controversies surrounding Edison EV, a subsidiary of Edison Motors that was the funding channel for acquiring Ssangyong Motor, involving allegations of stock price manipulation and embezzlement by major shareholders. Edison EV, a KOSDAQ-listed company, ultimately faced delisting after receiving a 'disclaimer of opinion' on its audit report.

What Does 'Delisting' Mean That Instills Fear in Investors?

Delisting means that a company can no longer be traded on domestic stock markets such as KOSPI and KOSDAQ and is expelled from the market. For companies, it is akin to a death sentence.

Delisting does not mean the company disappears. It can still be traded on over-the-counter (OTC) markets outside of KOSPI and KOSDAQ. However, OTC markets have many limitations. It is difficult to find trading counterparts, and capital gains are subject to transfer taxes. Moreover, companies that have been delisted are perceived as having been expelled due to unfavorable incidents, which negatively affects their credibility.

What Kind of Companies Get Delisted?

The criteria for delisting and designation as a management item differ slightly between KOSPI and KOSDAQ. KOSDAQ tends to be somewhat stricter than KOSPI. Reasons for delisting or designation as a management item include deteriorating performance, embezzlement or breach of trust by management, and disclaimer of opinion on audit reports.

[Image source=Yonhap News]

What Happens to My Shares If Delisting Occurs?

Once delisting is decided, a 7-day orderly trading period is provided. However, during this period, there are no upper or lower price limits, so shares often trade at about one-tenth of their price just before delisting. For example, Shinla Jene's shares, which once traded at around 150,000 KRW, plummeted to the 10,000 KRW range.

What Is a 'Management Item'?

Designation as a management item means the company is not immediately delisted but is in a pre-delisting stage. It serves as a warning that delisting may occur, alerting investors and helping the company to normalize its operations.

From Shinla Jene to Ostem Implant and Edison EV... The History of Delisting

Companies that are receiving renewed attention due to the delisting crisis of Edison EV include those that have faced similar fates in the past, such as Shinla Jene, Kolon TissueGene, and Ostem Implant.

The most recent case is Ostem Implant. On January 1 of this year, Ostem Implant, which had been one of the hottest stocks in our market, was suspended from trading after its former finance team leader embezzled 221.5 billion KRW. The Korea Exchange held a Corporate Evaluation Committee (CEC) meeting to discuss whether to maintain Ostem Implant's listing and decided to 'postpone the review.' This means the decision between resuming trading or delisting has been delayed, and the trading suspension is expected to continue for the time being.

[Image source=Yonhap News]

Kolon TissueGene, known for the so-called 'Invossa incident,' shocked the market as the first large conglomerate affiliate to face delisting. Trading was suspended in May 2019 after it was revealed that the main ingredient of the osteoarthritis treatment 'Invossa K Injection (Invossa)' was kidney cells, not cartilage cells as originally reported. Subsequently, regardless of the ingredient controversy, the Korea Exchange announced that it would hold another committee meeting after the improvement period granted by the CEC last year ends on August 31 this year, to decide on delisting due to allegations of embezzlement and breach of trust.

Shinla Jene, once hailed as a biotech miracle, rose to become the second-largest KOSDAQ company by market capitalization thanks to the successive successes of its anticancer drug Pexa-Vec clinical trials. However, in August 2019, the failure of Pexa-Vec's phase 3 trial and the trial's suspension caused the stock price to crash from around 150,000 KRW to the 10,000 KRW range. Shinla Jene's trading has been suspended since May 2020, and on February 18 of this year, the CEC granted an additional six-month improvement period. Shinla Jene plans to submit a report on the implementation of its improvement plan and related expert opinions within 15 days after the improvement period ends on August 18, and then hold another KOSDAQ Market Committee meeting in October to discuss delisting.

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