Konex exchange for SMEs planned

To enhance small and medium-sized enterprises’ financing channels, a new stock market for shares in SMEs will be established in addition to the blue-chip Kospi and small-cap Kosdaq markets, the Financial Services Commission said yesterday.

The new stock market, called Korea New Exchange or Konex, will be established as a downstream market under Kosdaq and later become an independent market when a revision of the Capital Markets Law is eventually passed at the National Assembly next year, according to research conducted by two finance professors at the request of the FSC.

The FSC originally planned to launch the Konex by revising the law by the end of this year. The current law only provides for the Kospi and Kosdaq. The revision bill didn’t pass in November at the parliament.

“Kosdaq, which was created in 1996 to help small businesses that failed to meet the Kospi’s stringent capital and profit qualifications find financing, has transformed into a market dominated by high potential enterprises or large SMEs,” Eom Kyong-sik, a finance professor at University of Seoul, said at a workshop hosted by the FSC and the Korea Exchange. “Over-the-counter Freeboard markets which also targeted SMEs have become inadequate financing channels for start-ups or SMEs that are in the early and middle stage of development.”

Eom called for the swift introduction of Konex, saying small companies are reliant on bank loans.

He said the FSC should introduce Konex as quickly as possible and not wait until the National Assembly approves revisions of the Capital Market Law. He proposed the FSC create Konex as a downstream market under Kosdaq after amending the Korea Exchange’s regulation.

The Konex will be open to small ventures at an early stage of development with at least 1 billion won ($932,000) of their own capital. Similar businesses that have been operating for more than 10 years with at least 3 billion won in assets qualify for the Kosdaq.

“There are 380 start-up firms that qualify for listing in Konex, and their combined market cap is estimated to be between 13.6 trillion won and 18.2 trillion won,” Eom said.

By Kim Mi-ju [mijukim@joongang.co.kr]