"Use the Backdoor When Front Door is Unavailable"

For companies eager to enter the KOSDAQ, a backdoor listing provides an attractive possibility. Unlisted companies increasingly purchase shares of listed companies that are deemed unattractive on its own from an investment standpoint.

Backdoor Listing of Companies with Good Potential-

Backdoor listings were frequently used in the past to illegally expand a company`s size or to fulfill the largest shareholders` greed by selling stocks at a higher price. Upon swapping of shares between listed and unlisted companies, the largest shareholders would embezzle the company`s money, degrading the overall image of the backdoor listing.

But an array of recent backdoor listings on the KOSDAQ is considered fundamentally different in its nature from those in the past since companies involved in the practice are normally in good shape.

BSE, a manufacturer of microphones which are inserted into mobile phones and possessing the industry’s largest market share, recently registered for the exchange through a backdoor listing by using Digital Camp`s shares. The company, which registered three times for a public offering, failed to pass preliminary investigation due to lingering lawsuit involving patent rights.

However, the company finally succeeded in being listed on the market, using the shares of Digital Camp, a software distribution company with an operating loss of 1.3 billion won. The company has become a robust mobile phone parts manufacturer with 10 billion won in annual profit out of 200 billion won in revenue.

NetBrain, a communication network company, SesNet, a internet education company, Soltron, a semiconductor inspection device manufacturer, and LifeCord, which specializes in storing umbilical cord blood, are among the companies which either successfully used backdoor listings to enter the market or are trying to be one of those.

The negative stance on backdoor listings has somewhat faded after a number of robust companies successfully used the scheme.

One securities firm analyst said, "We might finally witness some successful cases of backdoor listings. If activated, it will bring some positive effects, giving the needed motivation to many unlisted companies."

However, many people are still concerned about these companies` actions.

Regarding the main reason for using the backdoor method to be listed on the market, many companies explained that it took too long to pass the initial examination. But many say that the real reason could be a lack of confidence in passing the examination.

Investors might be misled because backdoor listings completely alter the nature of the target company in a relatively short period of time.

Jang Young-soo, a researcher at Dongbu Securities, said, "A public offering is very vital for the company and is sometimes called `The Second Establishment.` I think it is better for healthy companies to use the front door."

Wan-Bae Lee roryrery@donga.com