Companies Avoiding Public Offerings

Experts say that there are many companies that do not feel the need to raise capital through the stock market, and many large stockholders who are allergic to regulations and interferences after public offering.

Rising Stock Prices, Falling Amounts of Listed Companies-

According to the Korea Exchange yesterday, the KOSPI index, which had stood at 627.55 in late 2002, increased 3.3 times up to 2,064.85 by late October this year.

However, the number of companies listed in the KOSPI market increased just 8.6 percent, from 683 to 742. In particular, the annual new addition to the market decreased by 55.3 percent from 5.9698 trillion won in 2002 to 2.6681 trillion won last year.

In contrast, Asian stock exchanges grew 3.6 times from $25 billion in 2002 to $91 billion last year.

Stock exchanges in London, New York, and Singapore, present or aspiring financial hubs, are competing with each other to list foreign companies as well.

The number of foreign companies newly listed in the London Stock Exchange expanded more than 10-fold from $1.9 billion in 2004 to $22 billion last year.

An economist said, “The overall gain in stock prices over the past few years is fueled in large part because of the continued ‘surplus demand’ in the stock market caused by non-public blue chip companies’ aversion to public offerings.”

Stringent Public Offering Conditions, Interventions and Regulations-

Companies that do not want to be listed explain that the public offering procedures are too complicated and they do not feel the need to raise funds in the capital market. Moreover, a variety of interventions and regulations, tangible or intangible, on listed companies and the resulting constraints on management control are also another reason for their aversion.

In a survey that the Korea Securities Research Institute (KSRI) conducted on 1,433 private companies, 22.6 percent of 289 respondents cited “no need for raising capital” as their reason for not going public, while 7.0 percent cited the complex procedure for public offerings.

Indeed, companies have to meet 15 criteria to be listed and wait more than three months for a decision, while it takes only three weeks in the U.S. and Hong Kong.

Kang Hyeong-cheol, researcher at the KSRI, said, “Large shareholders seem to think there is no need to bother to go public through such a complicated procedure from a cost-effectiveness perspective. Their concerns that listing on the stock market will increase external interventions and risk for weakening management control must have played a part.”

An executive whose company went public on the KOSDAQ market a few years ago said, “As a slight delay in our business plan led to a selling of shares and protests from external shareholders who considered the listing to be a failure, we even thought of delisting ourselves.”

Indeed, a considerable number of large shareholders of non-listed companies think: “Public offerings only cause more headaches.”

However, some point out that aversion to listing companies with a strong profit base and high level of growth potential will serve as an obstacle to the development of the Korean stock market and economy.

Kang stressed, “The revitalization of public offerings is the first step toward development of the capital market,” adding, “We need to reduce unnecessary intervention for corporations from the government and society in order to encourage public offerings.”

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