‘Konex’ planned as new stock market for SMEs

Korea’s top financial regulatory agency plans to establish a new stock market for shares in small and medium-sized enterprises (SMEs), in addition to the current blue-chip Kospi and small-cap Kosdaq markets.

Envisioned as a way to open up more direct financing channels for SMEs, regulators said that more than 51,000 small enterprises or start-ups could potentially list in the new market that is slated to launch by the end of this year.

However, with retail investors excluded from directly participating in the new market, its success will depend on the trustworthiness of investment advisors. They are tasked with looking into SMEs’ hidden operations in order to inform institutional investors such as pension managers and banks.

At a press briefing yesterday, the Financial Services Commission announced that the new stock market for listing and trading shares of SMEs will tentatively be called the Konex, or Korea New Exchange.

The FSC expects the stock market will fill a void left by the primary Kospi, secondary Kosdaq and over-the-counter Freeboard markets.

“Currently, SMEs’ financing channels are skewed toward bank loans, while the ratio of direct financing is very low,” said Chin Woong-seob, director-general of the FSC’s capital market bureau.

“The Kosdaq and Freeboard markets, which once targeted SMEs, have been inadequate financing channels for them,” he said. “Most start-ups fall short of the Kosdaq’s high entry barrier, [while] the existence of insolvent companies that were delisted from bigger markets in Freeboard has soured investments [in the over-the-counter market].”

Companies listing in the new market will need between one-third and one-tenth as much equity capital and revenue, or quarterly net profit, as companies listing on the Kosdaq. But regulators intend to clarify the requirements after consulting private-sector experts.

The FSC anticipates there will be plenty of demand to list in the new market as there are 13,000 unlisted SMEs with more than 7 billion won ($6.2 million) in assets and 35,000 tech start-ups and state-designated “innovative businesses.” Additionally, some 3,400 companies have attracted investments from venture capital and other investment sources.

The FSC said that only institutional investors such as pension managers, securities brokerages and other financial companies will be able to trade directly on the Konex.

By Lee Jung-yoon [joyce@joongang.co.kr]