Korean companies at risk of delisting as conditions worsen

A number of Korean companies are at risk of delisting as business deteriorates and the cost of funding increases, according to Korea Exchange (KRX).

Conbuzz, the producer of black box Winycam, is about to be delisted KRX said on Nov. 15. If no appeals are made within 15 days from notice, the delisting process will proceed.

The company had previously disclosed its state of capital impairment in Oct. 2020 but has not been able to improve its status despite KRX offering time for business improvement.

Capital impairment happens when a company’s total equity is lower than its capital stock.

Shareholders of the company say they have been “in false hope for two whole years.”

More companies are likely to be in a similar state to Conbuzz as financial costs are increasing while profits are plunging for these companies. Interest rate hikes and the economic downturn have worsened the situation.

In the third quarter, a total of nine listed companies have impaired capital, according to the KRX’s report.

For these companies, capital stock has been declining as deficits accumulated. The situation is designated as administrative if the company's capital impairment ratio exceeds 50 percent.

If the situation continues for over two years, companies will be selected for delisting. Those in complete capital impairment will be proceeded to examination for delisting immediately.

The Kospi-listed company with the highest capital impairment rate in the third quarter was Hanwha General Insurance. The insurance company sold its company building and is trying to increase capital, but its capital impairment rate reached 93.4 percent in the third quarter.

“If the new IFRS 17 standard is applied, liabilities will decrease, allowing the company to overcome capital impairment,” said a spokesperson for Hanwha General Insurance.

Airline companies are facing a worsening risk of getting delisted. T’way Air’s capital impairment rate reached 66.9 percent and that of Asiana Airlines 57.3 percent, if Air Busan and Air Seoul are included.

The company’s debt ratio was at 2,410.6 percent at the end of last year, which soared to 10,298 percent in the third quarter. Samil PwC, which audited the company’s third-quarter report, mentioned that there is significant uncertainty in relation to the company’s status as going concern.

“Airline cash flows from operations is at a deficit currently, so the basic circumstance has worsened seriously,” said Lee Man-woo, an honorary professor at Korea University Business School.

“These companies are hit with a double whammy due to difficulty in financing as foreign currency-denominated debt increased because of depreciation of the won.”

Lotte Chemical announced its 1.1-trillion-won rights offering plan last Friday. This was due to the company financially supporting Lotte E&C for its upcoming acquisition of Iljin Materials.

“The financial burden will increase more as interest rate rise, which is inevitable if inflation continues,” said Sung Tae-yoon, an economics professor at Yonsei University.

“The situation of companies with high liabilities will worsen and the risk will expand through the entire financial market."

In order to prevent companies from going bankrupt, some say basic jobs should be done, such as amending profit structures.

“If companies rely on financial support and barely extend their business lives, it would eventually increase the company’s insolvency level,” said Lee from Korea University.

“The government needs to help businesses.”

BY KIM DO-NYUN [cho.jungwoo1@joongang.co.kr]