[Interview] "Stepping Up as a Savior for Companies Facing Delisting Crisis"

Sangil PwC's Partner Jeong Ji-won in Charge of 'Listing Maintenance Support Center'
Providing Customized One-Stop Services for Each Company... Contributing to Market Soundness

"Just as a person can be healthy when all organs such as arms, legs, and internal organs function well, maintaining a company's listing requires harmonious operation of complex factors such as accounting, IR, business, and financing."

Jiwon Jeong, Partner and Head of the 'Listing Maintenance Support Center' at Samil PwC, is explaining the purpose of the center's establishment. Photo by Samil PwC

As the deadline for submitting audit reports for companies with December fiscal year-end approaches, anxiety is growing among companies facing reasons such as trading suspension, designation as management stocks, and delisting eligibility review. In this context, Samil PwC has attracted attention by establishing a 'Listing Maintenance Support Center' to assist companies at risk of delisting. Jeong Ji-won, the partner in charge of the center, recently told Asia Economy, "We will not only advise on listing maintenance plans for companies expected to face trading suspension due to delisting reasons but also provide customized one-stop solutions for companies to proactively respond before delisting reasons arise, thereby contributing to corporate sustainability and investor protection." The center, which started its service on the 2nd, is the first listing maintenance support center in Korea. Partner-level experts with over 20 years of experience (3 in the Deal division, 4 in the audit division, and 1 in the Tax division) have joined the center.

Number of Companies Facing Delisting Issues Expected to Increase This Year

The Korea Exchange relaxed the requirements for delisting and designation as management stocks last December. However, considering the continuous increase in trading suspensions over the past decade and the ongoing economic downturn, the number of companies with listing maintenance issues is expected to increase significantly this year as well.

Jeong Ji-won, the center head, predicted, "Due to inflation caused by excessive liquidity supply after COVID-19, interest rate hikes to address it, and supply chain instability, many domestic companies are expected to experience deteriorating profitability, leading to an increase in delisting issues." Moreover, the causes of difficulties in maintaining listings are becoming more diverse and complex, including the adoption of International Financial Reporting Standards (IFRS), the designated auditor system under the new External Audit Act, and an increase in cases of modified audit opinions due to a lack of professional accounting personnel within companies.

Jeong said, "While sales declines or expanded operating losses are sometimes unavoidable, in cases where companies face delisting risks due to inadequate internal controls or reasons such as breach of trust or embezzlement by major shareholders, it is important to resolve reasons for audit opinion disclaimers and maintain listing through re-audit." He added, "We will introduce a one-stop service leveraging the expertise of accounting firms, focusing on preparing reports for delisting eligibility reviews, advising on re-audit or designated audit responses, internal control consulting, governance improvement consulting, and investment attraction or sale advisory."

Jin Kim, Jongseok Lee, Changhoon Lee, Jiwon Jung, Hoseong Han, and Kwangsoo Kim partners (from left) who joined Samil PwC's 'Listing Maintenance Support Center'. Photo by Samil PwC

The Listing Maintenance Support Center plans to provide re-audit response services such as assistance in preparing revised financial statements and notes, and review of key issues. Jeong said, "Considering the global economic downturn, rising interest rates, and instability in the project financing (PF) market, listed companies may face difficulties in financing." He added, "We also plan to offer services such as restructuring of non-core business units, mergers and acquisitions (M&A), and investment attraction before reasons like trading suspension occur."

Some express concerns that the Korea Exchange's relaxation of delisting criteria may be exploited by certain groups. Last December, the Korea Exchange revised the delisting system to reduce corporate burdens and protect investors. Formal delisting reasons (such as operating losses for five consecutive business years) were converted to substantive reviews, and objections and opportunities to resolve reasons were granted for some delisting causes that previously did not allow objections.

Jeong said, "Personally, I think the change in the delisting system is better described as rationalization rather than relaxation." He explained, "For example, in KOSDAQ, four consecutive years of operating losses led to designation as management stocks, and five consecutive years led to substantive review. However, these criteria overlapped with the 50% capital impairment requirement and pre-tax loss exceeding 50% of equity." He continued, "The current system, which grants improvement periods through substantive reviews and discusses whether companies have faithfully implemented improvement plans at the Corporate Review Committee, is desirable." He emphasized that concerns about an increase in groups exploiting the changed system are not significant. Jeong said, "With the designated auditor system, monitoring by related agencies, and the activation of healthy small shareholder movements, the space for such groups will gradually diminish."

According to the Korea Exchange, among 171 companies delisted in the past five years, 44 cases were due to adverse audit opinions, the most frequent reason. Regarding this, Jeong said, "Adverse audit opinions mainly occur when auditors cannot obtain sufficient audit evidence through normal audit procedures due to accounting errors, opaque transactions, or fraud by executives and employees." He added, "Since the introduction of the new External Audit Act, auditors' responsibilities have increased, and the standards required by the strengthened designated auditor system have risen, but due to a lack of professional accounting personnel in companies, cases of failing to respond properly by the business report submission deadline have increased."

Even if companies receive adverse opinions, they are given improvement periods to resolve issues, but pressures such as debt repayment and financing difficulties often cause business challenges. Therefore, even if audit issues are resolved, many companies struggle to maintain their listings. Jeong emphasized, "If companies fail to adapt to the changing accounting environment, cases of modified audit opinions will continue to occur. This is not something that can be solved by securing transparency of accounting information alone; efforts to improve financing capabilities and profitability are also necessary."

Investing in Companies That Escaped Delisting Requires Caution

He also offered advice to individual investors, emphasizing the need for careful examination when investing in companies that have escaped delisting risks. Jeong said, "Even if the embezzlement or breach of trust is the same, you need to check whether it occurred among employees or involved executives or major shareholders." He stressed, "If it involves executives or major shareholders, it is essential to verify whether these executives or major shareholders have changed." He advised, "When trading resumes after a long suspension due to embezzlement or breach of trust, stock price volatility can be significant for a considerable period, so investors should check the company's profitability and business sustainability through electronic disclosure."

Jeong, who joined Samil in 2003, has specialized in providing services throughout the lifecycle of listed companies, including initial public offerings (IPO), listing maintenance, spin-offs, mergers, and M&A advisory for over 20 years. Recently, he has focused on small shareholder movements and shareholder disputes, conducting consulting to enhance synergy among shareholders.

Jeong said, "About 100 companies successfully complete IPOs each year with difficulty, but listed companies cannot be perfect amid rapidly changing global macroeconomic and domestic and international regulatory environments." He added, "We aim to be a catalyst to help listed companies maintain their listings, supplement deficiencies, and achieve a second leap forward."