FSC and Korea Exchange will name firms persistently ranked at the bottom of sector price-to-book ratios, with simulations pointing to 120 to 220 companies, or roughly 5% to 10% of listings.
South Korea will begin publicly identifying listed companies with persistently weak price-to-book ratios from November 2 under a new disclosure regime aimed at pressuring chronically undervalued firms to improve shareholder value. The Financial Services Commission (FSC) and Korea Exchange (KRX) set out detailed rules on July 28 for the "Low PBR Company Disclosure System," a follow-up to the Capital Market Structural Improvement Plan announced in March. The framework sorts companies into 11 sectors using GICS (Global Industry Classification Standard) and recalculates rankings every half-year. KOSPI-listed companies will be named if they remain in the bottom 25% of their sector's PBR for a cumulative three-year period, or six half-year terms. KOSDAQ-listed firms face a bottom-10% threshold, reflecting the characteristics of the tech- and venture-heavy market. Authorities had earlier floated a bottom-20% threshold for one consecutive year, but extended the assessment window to three years to smooth out industry cycles and the lag between investment and results. Regulators also built in anti-gaming provisions. Companies that miss the threshold in six consecutive half-year periods are generally targeted, but a firm that rises above the cutoff only once in that span can still be named if the seventh prior half-year period was also below the threshold. Companies that exceed the threshold two or more times in the latest six half-year periods will be excluded. For the calculations, book value will come from audited or reviewed annual and semi-annual reports, while market capitalization will be based on the average over the 20 trading days before the date seven trading days ahead of disclosure, a method designed to reduce distortion from one-day price swings. A preliminary KRX simulation estimated 120 to 220 companies would have been subject to disclosure as of May, including about 80 to 130 KOSPI names and 40 to 90 KOSDAQ names. Around 120 companies, split between 80 on KOSPI and 40 on KOSDAQ, were identified as long-term undervaluation cases after falling below the threshold for six consecutive years. Companies can win a one-year exemption by filing a Corporate Value Enhancement Plan covering the causes of a low PBR, targets, improvement steps, and implementation assessments, although firms below the threshold for a cumulative six years cannot use that exemption. The KRX will use a detailed template to deter superficial filings. For the initial rollout, a company whose PBR on the October 22 reference date is above its sector threshold will stay off the first list even if it had failed the test during the previous five half-year periods. The list will be posted on KIND (KRX disclosure portal) on the first trading day of each May and November, and brokers will add a "Low PBR" tag on HTS (home trading system) and MTS (mobile trading system) platforms. The KRX also plans management interviews, briefings, and consulting for targeted firms, and intends to reflect shareholder-value measures including PBR in substantive delisting reviews and stewardship code guidance. The FSC will collect public comments on related KRX rule changes from August 5 to August 24 before the Securities and Futures Commission and the FSC consider approval in September.