As financial authorities tighten delisting criteria to weed out underperforming companies, investment banks are facing increased complexities in managing initial public offerings (IPOs). Concerns are growing in the investment banking (IB) sector about the heightened risk of losses on held investments and the potential blockage of future IPO opportunities.
According to the financial investment industry on August 11, the primary worry for IB firms is the inability to recover invested funds and a contraction in operational capacity.
When managing IPOs, securities firms are required to acquire a certain percentage of shares or make direct equity investments in the issuing company before the listing. However, as the delisting criteria become stricter and more companies fall under these regulations, shares that are locked up during the lock-up period or those that have not been disposed of could face total delisting, leading to significant valuation losses.
Moreover, a more pressing issue is the restriction on future deal assignments. Under current regulations, if a security firm has a company it listed that is delisted within two years, the firm faces limitations on its eligibility to manage IPOs through the business model track for a specified period.
The business model track is a key pathway for listing companies that, despite being unprofitable, are recognized for their technological capabilities and growth potential, based on recommendations from securities firms. An increase in delisting cases among managed companies could result in the loss of one of the firm's core revenue sources.
In fact, the number of companies at risk of delisting is on the rise. According to Leaders Index, a corporate analysis firm, as of last month, 7.4% (192 companies) of domestic listed firms fell below the new market capitalization thresholds (300 billion won for KOSPI and 200 billion won for KOSDAQ) set just a month prior.
Looking ahead to next year, when the thresholds will be further raised (500 billion won for KOSPI and 300 billion won for KOSDAQ), it is projected that 18.6% (479 companies) of all listed firms will not meet the criteria for maintaining their listings. This indicates an increasing burden of underperforming companies that securities firms will have to manage.
An IB industry insider stated, "The tightening of delisting requirements is a sensitive issue for securities firms. While the loss of held shares is a concern, the risk of being blocked from recommending future listings is growing, which will inevitably lead to excessive caution in deal selection and underwriting assessments by securities firms."
* This article has been translated by AI.
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