Navigating the Process of Issuing Company Shares in South Korea

The economy of South Korea is emerging well right now. South Korea is one of the world’s economies that is expanding at the quickest rate. It is in the top 10 in terms of actual gross domestic product (GDP), while it is in the top 30 in terms of purchasing power parity (PPP). South Korea has an estimated population of more than 51 million people.

Investors from across the world are drawn to South Korea because of the country’s stable economy and high growth rates. In addition, there are extensive research and development skills, as well as a strong position in high-end electronics, owing to the country’s excellent educational system.

If you are a business founder looking to understand the South Korean equity market, you must be familiar with the stages of company development including the IPO process and timeline in South Korea and the importance of the Korea Exchange (KRX). This article will help you do that by covering everything you need to know about issuing company shares in South Korea.

Issuing Company Shares in South Korea – South Korean equity market

The Korea Exchange (KRX) represents the South Korean equity market, which is known to be one of the most dynamic and largest markets in Asia. The investment options available cater to both local and international investors. The market is recognized for its strong regulatory framework, measures to protect investors, and sophisticated trading infrastructure.

The KRX offers investors exposure to a variety of industries because of the major corporations in areas including technology, the automobile, and consumer goods that are listed there. Powered by a robust economy, cutting-edge technology, and pro-business government policies, the South Korean equity market has seen tremendous development in recent years, making it a desirable location for investors looking for possibilities in East Asia.

The Korea Exchange

The Korea Exchange (KRX) is the only stock market in Korea. KOSPI, KOSDAQ, and KONEX are the three South Korean equity markets that makeup KRX.

Since its inception in 1956, the KOSPI Market has been Korea’s primary equities exchange, with a total market capitalization of its listed businesses of around KRW 2,185 trillion. The KOSDAQ Market was established in 1996 to facilitate the raising of money by firms engaged in the Information Technology, Biotechnology, Culture Technology, and Venture money industries. As of 12 November 2021, the total market capitalization of its listed firms is around KRW435 trillion.

Small and medium-sized businesses are the only kind of enterprises whose shares are listed on the KONEX Market. Its primary mission since its inception in 2013 has been to serve as a source of expansion funding and assistance for small and medium-sized businesses in the entrepreneurship sector. As of 12 November 2021, the total market capitalization of its listed firms is around KRW6.3 trillion.

The KRX is home to a total of 23 international firms, one of which trades on the KOSPI platform and the remaining 22 listed on the KOSDAQ platform.

Eligibility Requirements for Issuers in South Korea

The Korea Exchange (KRX) sets eligibility criteria for issuers in the regional South Korean equity market. These requirements are aimed at promoting transparency, safeguarding investor interests, and maintaining market stability. While precise requirements may differ per listing type (for instance, main board vs. KOSDAQ), several elements are universal, including:

• The duration of time that the firm has been in business exceeds three years.
• At least KRW 30 billion is in paid-in capital for the corporation, and at least 1 million shares are anticipated to be listed.
• The firm has acquired the required number of public shares by the KOSPI Market Listing Regulations.
• A company’s connection with its shareholders, as well as the kind and scope of changes to its ownership structure, demonstrating the managerial stability of the organization is provided.
• Whenever there is a change in the ownership structure of a company due to a spin-off, merger, or transfer, the company in question is legally obligated to detail its internal shareholder protection strategy.

Pre-IPO Considerations

There are several things that businesses must examine before proceeding with an IPO and issuing company shares in South Korea. The following are important factors to consider before investing in a South Korean company that is planning to go public.

• Selection of underwriters, auditors, and legal counsel – It is crucial to have competent underwriters, accountants, and attorneys. Credible underwriters provide market knowledge and investor connections, while reliable auditors guarantee truthful financial statements. Compliance, document creation, and understanding convoluted rules all benefit greatly from the advice of seasoned legal counsel. Together, they boost credibility, reduce risks, and ensure regulatory compliance and investor trust in the South Korean equity market.
• Financial reporting and compliance requirements – The company’s finances must be in order and conform to listing criteria before the company may be considered for listing. To be considered financially sound, a company should demonstrate a history of making profits, maintaining consistent financial performance, and providing audited financial statements.
• Business and financial due diligence – It is strongly advised to work with knowledgeable advisors that have a focus on South Korean equity markets. These experts can help businesses deal with the complicated IPO process, legal and financial issues, governmental compliance, due diligence, and other issues.

IPO Procedures and Timeline

Several variables might affect how long it takes for an initial public offering to happen, such as the difficulty of the firm’s operations, the length of the regulatory procedures, the state of the market, and how well the company handles the due diligence and preparation phases. Depending on market conditions and the number of investors interested in the IPO, the process of going public in South Korea might take about six months or more. Companies need to communicate effectively with their advisers to have a successful IPO.

• Initial filing and review by the Korea Exchange – The business completes internal audits, hires consultants, and finalizes paperwork in advance of the first public offering. Auditors and underwriters conduct a thorough investigation of the company’s finances, operations, legal standing, and any dangers. The firm then drafts and submits the registration statement and prospectus for review by the Financial Supervisory Service (FSS) and KRX.
• Underwriting and pricing of the IPO – The IPO price is set by the firm and underwriters in response to the market and investor interest. Shares will be allocated to retail and institutional investors. To pique investor interest, convey the investment scenario, and seek share orders, the business, the underwriters, and legal professionals engage in a marketing initiative and roadshow.
• Listing on the Korea Exchange – Stock in the firm is listed on the South Korean equity market and trading starts once the KRX gives its permission. As a result of the firm becoming a publicly listed corporation, investors will have access to a secondary market in which they may purchase and sell the company’s shares.

Disclosure and Reporting Requirements

The procedure also involves confirming that the disclosure and reporting requirements are fulfilled. The information on the public offering and sale, as well as the issuer, that must be included in the prospectus must be similar to that which is included in the registration statement.
Specifics of the offering/sale to the general public:

• Background details on the offering/sale
• Securities’ ownership rights
• Dangers of investing in these securities
• Particulars on the underlying assets (for derivative-linked securities)
• Recommendation from the underwriter (if one exists)
• Evaluation opinion of the stocks Analysis Institution (for stock-unlisted companies making bids on stocks)
• The objective of the fund-raising
• Additional concerns that must be addressed to safeguard the investment

More information about the issuer:

• General overview of the organization
• Range of operations
• Data about money and finances;
• Statements of audit
• Details about the company’s management, shareholders, officials, staff, and parent and subsidiary businesses
• Disclosure of business dealings with close associates
• Additional concerns that must be addressed to safeguard investment.

The issuer must file both the registration statement and the accompanying prospectus. Anyone who purchases shares from a company whose registration statement or prospectus contains an untrue statement of a material fact or omits to mention a material truth is entitled to recover damages against that company and the following person(s):

Those involved in submitting the registration statement, including the issuer’s board of directors.

And also anyone who:

• Made use of his or her position inside the firm to direct or order the director to draft the registration statement;
• Or otherwise purported to act on behalf of the directors, drafted the registration statement.
• A licensed professional such as a CPA, appraiser, credit rating expert, lawyer, patent attorney, or tax preparer attesting to the statements made in either the registration document or any amendments thereto were accurate.
• Anyone who verified the registration statement and agreed to have their statement included as an appraisal, analysis, or confirmation of the representations included therein.
• The securities’ underwriter or broker.
• Author or distributor of the prospectus.
• Person selling securities in a transaction when a registration statement has been submitted.

Secondary Offerings and Corporate Actions

While the overall standards for both main and secondary listings are the same, the qualitative assessment may be skipped for secondary listings provided certain conditions are satisfied.

• The international securities market listing has been in effect for at least five years.
• When filing for the qualification review for listing, a firm must prove that its total market capitalization on the qualifying international securities market is more than KRW2 trillion.
• The foreign firm’s most recent fiscal year’s annual sales were at least KRW2 trillion, with a three-year moving average of at least KRW1 trillion.
• The company has had pre-tax earnings of over KRW300 billion in the most recent fiscal year, and over KRW700 billion in the last three fiscal years.
• Over the previous three years, no fines or disciplinary proceedings have been taken by the international securities market or stock exchange’s governing body.

The secondary listing process is identical to the first listing process. However, there are a few reasons why international corporations could choose to issue Korean Depositary Receipts (KDRs) instead of their actual shares:

• Certain rights, such as the right to provide agenda for items to be discussed at a shareholders’ meeting or the right to inspect the financial records of the company, are unavailable to KDR holders unless they convert their KDRs to actual shares, which may be preferable to foreign companies.
• A foreign company’s governing papers must be revised before it may list its shares for direct trading. Instead of having to alter their charters for each issuance of shares, international businesses will only have to do so once when listing their KDRs as a secondary offering.

Manage and issue your company equity on Eqvista!

International investors find South Korea’s economy to be appealing because of its unique mix of stability and quick growth rates. While the region certainly offers promising investment opportunities, it’s important for investors to carefully weigh the potential risks before making any financial commitments. Therefore, it is essential to get assistance from an established company like Eqvista. Utilizing state-of-the-art equipment, we at Eqvista have a simplified procedure for administering and issuing business shares. Maximize your company’s potential with our top-notch equity management tool. Contact us today and take the first step toward business success!