From IPO Blue Chip to Trading Suspension: Padu Faces Crisis Just Two Years After Listing [Why&Next]

Prosecutors Indict Fadu Management and Company; Exchange Suspends Trading
Controversy Over Inflated Listing Emerges After 2023 IPO

Padu, a fabless (semiconductor design specialist) company, has had its stock trading suspended just over two years after its initial public offering. With prosecutors indicting Padu's management and the company itself, the firm now awaits the Korea Exchange's decision on whether it will be subject to a substantive review of listing eligibility.

Padu Headquarters. Provided by Padu.

According to the Korea Exchange on the 23rd, Padu's stock trading was suspended on December 19 due to the occurrence of grounds for a substantive review of listing eligibility. The exchange stated that, after reviewing the indictment against Padu and its management, it confirmed that documents submitted for the listing review contained false or omitted information critical for investor protection.

This follows the indictment of Padu's management and the corporation by prosecutors on December 18 for alleged violations of the Capital Markets Act. According to prosecutors, during the process of being listed on the KOSDAQ market in August 2023, they concealed the suspension of orders from major clients and inflated the public offering price. This comes about 11 months after the Financial Supervisory Service's Capital Markets Special Judicial Police referred Padu and officials from its lead underwriter to prosecutors in December last year.

Padu entered the KOSDAQ market in August 2023, drawing attention as a "KOSDAQ blue chip" at the time of its listing. The initial target public offering price ranged from 26,000 to 31,000 won, with the final price set at the upper end of this range. Based on this, the estimated market capitalization was around 1.5 trillion won. After listing, Padu's share price rose to as high as 47,100 won within about a month, an increase of more than 50% compared to the offering price. However, this upward trend did not last.

The actual performance diverged significantly from the revenue forecasts presented at the time of listing. Padu, which went public through the technology exception track, had projected 2023 revenue of 120.2 billion won. However, its revenue for the second and third quarters amounted to only 59 million won and 320 million won, respectively, sparking controversy over an "inflated IPO." The annual revenue for that year ended up at just 22.4 billion won, with a deviation rate of 81.32% from the forecast. Last year, revenue was only 43.5 billion won, with a deviation rate of 88.29% from the projected 371.5 billion won.

The Padu case has raised questions about the reliability of the technology exception listing system. As a result, financial authorities and the exchange have tightened their review standards. Discussions have also been initiated to improve the system by strengthening the responsibilities of lead underwriters and enhancing disclosure requirements to protect investors.

The final outcome for Padu is expected as early as next month, or by February next year at the latest. The substantive review of listing eligibility is a process in which the exchange determines whether to maintain a company's listing when significant issues arise regarding its financial condition or management transparency.

The exchange must decide whether to subject the company to a substantive review within 15 business days from the date the grounds arise. If necessary, this period can be extended by up to an additional 15 business days. During the review, factors such as business continuity, financial stability, and management transparency are comprehensively examined. If the company is designated as a review target, the exchange's deliberation committee will determine whether to delist the company or grant an improvement period.

Padu emphasized that the current trading suspension is not due to its technological capabilities or financial status, but rather an issue of interpreting the technology exception listing system. In a notice on its website, Padu explained, "The issue at hand concerns how the legal standards for revenue estimates at the time of listing are to be interpreted," adding, "We do not believe this is a matter of disputing our technological capabilities or the substance of our business." The company further stated, "We plan to diligently clarify the facts related to the issues raised through the upcoming court proceedings."

Padu also announced plans to clarify its standards for information disclosure. "We will more clearly distinguish the nature and uncertainty of forward-looking information in our disclosures related to revenue guidance and business outlook," the company said, adding, "We plan to continuously enhance our standards for disclosure and communication, including strengthening our internal verification procedures."