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July 1, 2013 10:10 am
South Korea on Monday launched a third stock market, designed for small companies, as the new government seeks to boost innovation in response to flagging economic growth.
Park Geun-hye, president since February, has promised to attack barriers limiting the growth of venture companies to reduce the economy’s reliance on a small number of large conglomerates.
The Konex market, launched with 21 listed companies, is intended to broaden the funding options available to companies that are too small to list on the main Korea Stock Exchange or the secondary Kosdaq market. South Korean authorities say they have taken the UK's AIM exchange as a model.
“For small and medium-sized enterprises to get on to Kosdaq, it takes about 14 years,” said Choi Joon-oh, director of the capital markets division of the Financial Services Commission.
“Before they reach that stage, they encounter difficulties and many don’t survive. Konex will make it easier for SMEs to progress to the Kosdaq market while raising funds in the capital market, instead of resorting to bank loans.”
Other government measures to boost small companies include tax benefits for early-stage “angel” investors, and increased lending by state institutions.
The new market will be open to companies with more than Won500m ($440,000) in equity capital, Won1bn in annual sales or Won300m in net profit. In contrast, companies listing on Kosdaq must have equity capital of at least Won3bn.
“And a number of regulations and conditions have been reduced to lower the barriers to entry,” Mr Choi added, noting that companies would have to make fewer public announcements than those listed on Kosdaq.
However, the emphasis on loose regulation risked reducing investor appetite, which was likely to be low in any case, said Yang Jin-young, a research fellow at the Korea Capital Market Institute.
“People don’t really know about these companies, and liquidity will be low,” he said. “But the government thinks it’s better to have more and more companies listed so that they can become more widely known.”
Hank Morris, adviser on North Asia at Triple A Partners, a consultancy, said that the government would have done better to focus on restoring momentum to Kosdaq.
“It would be much more logical to set up a new venture board as part of Kosdaq,” he said. “Kosdaq probably has improved its processes to the point that it would be the best exchange to use for ventures and it is not necessary or advisable to launch a new exchange.”
The number of companies listing annually on Kosdaq fell to 21 last year from 171 in 2001. The government blames this on “conservative management centred on protecting investors”, and has announced reforms including the separation of the management committee from the board of directors, and an easing of listing requirements.
In a separate move to boost competition in equity trading, South Korea will from August allow security firms to set up alternative trading platforms for stocks and depositary receipts.
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