[10 Years of KONEX] ① Market Capitalization Increased 10 Times... "Internal Control and Disclosure Capabilities Helped"

10 Years Since Launch: 177 Companies Raised a Total of 2.1 Trillion KRW
Exchange Provides Consulting Including Internal Accounting Control System Inspection and Disclosure Vulnerability Diagnosis

Editor's NoteThe KONEX, a stock market exclusively for early-stage small and venture companies, has marked its 10th anniversary. The market is evaluated as having achieved half of its intended success. The market size has grown since 2013. However, there is an analysis that its incubating role in helping companies advance to the KOSDAQ market still has limitations. While the market capitalization of the KONEX market has increased more than tenfold, only about 90 companies have transferred their listings to the KOSDAQ market. It is pointed out that institutional investor-focused policies need to be complemented by institutional measures that encourage individual investors to take active interest.

KONEX was established in 2013 to support early-stage small and venture companies with excellent technological capabilities but facing difficulties in raising funds. It was expected that small and venture companies would raise capital in the KONEX market, and investors would have opportunities to invest in companies with growth potential. Now, marking its 10th anniversary, it is evaluated that the initial quantitative goals have been achieved.

According to the Korea Exchange, six new companies were listed on KONEX in the first half of this year. Considering 4 in 2019, 5 in 2020, 2 in 2021, and 2 in 2022, this is the highest number in the past five years.

The total number of listed companies has also increased significantly since KONEX's launch. It was only 21 in 2013 but rose sixfold to 127 companies as of May this year. Market capitalization increased more than tenfold from 400 billion KRW to 4.2 trillion KRW.

This means that the purpose of activating investment in early-stage small and venture companies has been faithfully pursued. Before the KONEX market was established, small companies raised 83.3% of their funds through bank loans. Stocks and corporate bonds accounted for only 1.1% and 3.2%, respectively.

As a result, the debt ratio of unlisted companies such as small businesses increased, and the burden of interest expenses was heavier compared to listed companies. Above all, changes in bank lending policies sometimes threatened the survival of companies.

However, it was difficult for early-stage small and venture companies to raise funds in the KOSDAQ market. Early-stage small and venture companies found it challenging to meet KOSDAQ listing requirements such as company size and performance. Therefore, a consensus was formed on the need for a capital market dedicated to early-stage small and venture companies, and instead of utilizing existing securities markets, the KONEX market was established.

As a result, 177 companies raised a total of 2.1 trillion KRW in funds over the past 10 years in the KONEX market. The scale of fund-raising grew from 9.4 billion KRW at launch to 276.8 billion KRW as of the end of last year, a 30-fold increase.

This year, transfers from KONEX to KOSDAQ are also expected to increase compared to last year. Three companies have already completed transfer listings this year. Currently, six companies are pursuing transfer listings.

Last year's growth of the KONEX market was largely influenced by the Korea Exchange's revitalization measures. To facilitate listings, burdens related to disclosure, accounting, and governance were eased, and tax incentives were introduced to promote investment. A Korea Exchange official explained, "We dispatch accounting experts to KONEX-listed companies to support checking the operation status of internal accounting control systems, and in response to recent moves to strengthen disclosure requirements, we use the 'Disclosure Capability Diagnosis Tool' to identify disclosure weaknesses and provide customized solutions." He added, "In particular, to strengthen the original incubating function for small and venture companies, we have enhanced consulting that checks and suggests improvements for management transparency and business continuity of companies pursuing transfer listings."

Last year, the basic deposit regulation applied when investing in KONEX and the small investment-only account system were abolished. The conditions for transfer listings to KOSDAQ were also relaxed. Additionally, the establishment of the 'KONEX Scale-up Fund' to facilitate smooth capital raising by listed companies is positively evaluated.

The KONEX Scale-up Fund is a fund that matches private capital and securities-related institution funds on a 1:1 basis and supports in two phases. It is established with a scale of 200 billion KRW, and the first fund (100 billion KRW) has been completed. The second fund is planned to be established within this year. Kim Dae-jung, Executive Director (CFO) of Innojin, said, "When we newly listed on the KONEX market in April 2020 and transferred to KOSDAQ this year, we received a lot of help in internal control and disclosure systems. From the company's perspective, the coaching on aspects necessary for managing a listed company and the educational programs that enhance employee capabilities were impressive."