 
1. Introduction
There are two securities markets for public trading of shares,
i.e., the Korea Stock Exchange (the "KSE") and the Korea
Securities Dealers Automated Quotations System (the "KOSDAQ").
The KSE and the KOSDAQ correspond to the New York Stock Exchange
and the NASDAQ in the United States, respectively. An IPO (Initial
Public Offering) by listing the shares on the KSE is governed by
the Securities Transaction Act of Korea and the securities regulations
promulgated thereunder by the KSE, whereas an IPO by registering
the shares with the KOSDAQ is regulated by the same law and the
regulations established by the Korea Securities Dealers Association
(the "KSDA"), which is responsible for the operation and
management of the KOSDAQ. Recently, the KSE and the KSDA amended
the relevant regulations related to the requirements and procedures
for IPOs through these two securities markets in the direction of
facilitating listings on the KSE and registration with the KOSDAQ.
2. Listing of Shares on the KSE
2-1 Procedures
(1) If a Korean company wishes to newly
list its shares on the KSE, it must first file an application for
a preliminary IPO-qualification review with the KSE. The KSE has
two months, in principle, to review the application and notify the
applicant and the Financial Supervisory Commission ("FSC")
of the results. If the result of the KSE's preliminary IPO-qualification
review is affirmative, the applicant will proceed with further IPO
processes with the KSE.
(2) Assuming that the applicant is not
a small-to-medium sized company, it must make a public offering
of its shares in connection with the listing. In this regard, it
must submit a "notification of the issuance of securities"
(similar to a "registration statement" to be filed with
the KSE under U.S. securities law) to the FSC. Unless such notification
is accepted by the FSC, the applicant may not proceed with the public
offering of its shares.
(3) The applicant must file with the
KSE an application for the listing within one week from the completion
of the public offering. The KSE has one week to review the application
and notify the applicant of its approval or disapproval.
2-2 Major Requirements
Major requirements for the listing of a company's shares on the
KSE include the following:
(1) As of the date of the filing
of an application for the preliminary IPO-qualification review,
in principle, five years must have elapsed since the incorporation
of the applicant, and such a company must have operated continuously
for such period.
(2) As of the date of the filing of an application
for the preliminary IPO-qualification review, the applicant's stated
paid-in capital must be at least 3 billion won, its equity capital
must be at least 5 billion won, and the number of its issued and
outstanding shares must be at least 300,000.
(3) The applicant's
total sales for the preceding fiscal year must be at least 20 billion
won. In addition, average total sales for the preceding three
fiscal years must have been at least 15 billion won.
(4) The
applicant must have recorded operating profits, ordinary income
and net income for the preceding three fiscal years. Its P/E ratio
for the preceding fiscal year must be at least 25 percent, and the
aggregate of this ratio for the preceding three fiscal years must
be at least 50 percent.
(5) The applicant's debt-to-equity ratio
for the preceding fiscal year must be less than 150 percent of the
average debt-to-equity ratio of listed companies engaged in the
same businesses.
(6) The asset-based value per share must exceed
300 percent of the par value per share and the earnings-based value
per share must exceed 200 percent of the par value per share.
(7) The independent auditor's opinion in respect of the financial
statements of the applicant for the preceding three fiscal years
must be "unqualified" or "qualified."
(8)
The total of (x), the amount of capital increase, including the
amount of capital increase by the exercise of conversion rights
of convertible bonds (CBs) and bond warrants (BWs), that has been
made within one year from the filing of an application for preliminary
IPO-qualification review and (y), the amount of capital to be increased
by the exercise of conversion rights of outstanding CBs and
BWs, must not exceed 40 percent of the amount of the stated paid-in
capital as of the end of the fiscal year within which the date that
precedes the date of the filing of an application for a preliminary
IPO-qualification review by two calendar years falls.
(9) There
must have been no change in the shareholding of major shareholders,
or of any shareholder owning 1 percent or more of the total issued
and outstanding shares, for a period of one year preceding the filing
of an application for a preliminary IPO-qualification review.
In addition to the above requirements, certain requirements in relation
to the diffusion of shareholding in the applicant should be met.
3. Registering Shares with the KOSDAQ
3-1 Procedures
(1) If the applicant wishes to newly
register its shares with the KOSDAQ, it must first file an application
for a preliminary IPO-qualification review with the KSDA. The KOSDAQ
Committee established within the KSDA has two months, in principle,
to review the application and notify the results thereof to the
applicant, the underwriter and the FSC. If the results of the KOSDAQ
CommitteeÕs preliminary IPO-qualification review are affirmative,
the applicant may proceed with further IPO processes with KOSDAQ.
(2) Assuming that the applicantÕs shareholding has already
been diffused, it must make a public offering of its shares in connection
with the registration. In this regard, it must submit a "notification
of the issuance of securities" to the FSC. Unless such notification
is accepted by the FSC, the applicant may not proceed with the public
offering of its shares.
(3) The applicant must file with the
KSDA an application for registration after the completion of the
public offering. The KOSDAQ Committee will review the application
and notify the applicant of its approval or disapproval. In
the absence of any special circumstances, it is highly unlikely
that the KOSDAQ Committee will disapprove the registration if it
has already notified the applicant of the affirmative result of
its preliminary IPO-qualification review.
3-2 Major Requirements
Major requirements for registering
shares with the KOSDAQ include the following:
(1) Three years
must have elapsed since the incorporation of the applicant, and
the applicant must have operated continuously for such period.
(2) The applicant's debt-to-equity ratio for the preceding fiscal
year must be less than 150 percent of the average debt-to-equity
ratio of registered companies engaged in the same businesses.
(3) The independent auditor's opinion in respect of the financial
statements of the applicant for the preceding fiscal year
must be "fair" or "qualified."
(4) The
total of (x), the amount of capital increase, including the amount
of capital increase by the exercise of conversion rights of CBs
and BWs, that has been made within one year from the application
for preliminary IPO-qualification review and (y), the amount of
capital to be increased by the exercise of conversion rights of
outstanding
CBs and BWs, should not be more than 100 percent of the amount
of the stated paid-in capital as of the end of the fiscal year within
which the date that precedes the date of the filing of an application
for a preliminary IPO-qualification review by two years falls.
In addition to the above, the applicant should comply with certain
requirements for the diffusion of shareholding in itself.
4. Other Related IPO Requirements
4-1 Shareholding Diffusion Requirements
Under the
relevant securities regulation, shares to be issued or sold in an
IPO listing the applicantÕs shares on the KSE or registering
the shares with the KOSDAQ must be allocated by the managing underwriter
in accordance with the following distribution ratios: (i) 20 percent
of the shares must be allocated to the applicant's employee stock
ownership association; (ii) another 30 percent must go to institutional
investors other than related parties of the applicant (which would
include any major shareholder); and (iii) the remaining 50 percent
may go to the bidding public.
4-2 Determining the Share Price for the IPO
The securities
company that intends to act as the managing underwriter for an IPO
of the applicant must perform an analysis with respect to the applicant's
shares and submit its analysis report to the FSC, together with
the applicant's notification of the issuance of securities. The
above-mentioned analysis of the shares should be made in order to
calculate the essential value of such shares, which is composed
of asset-based value and earnings-based value thereof. The subscription
price for the shares in an IPO should be determined by the agreement
between the underwriters and the applicant, taking into consideration
the results of the demand expectation analysis that will have been
performed by the managing underwriter and also probably based on
an analysis of the shares of the applicant.
For futher information, please contact
Bae, Kim
& Lee
Tel: 82-2-3404-0000, Fax: 82-2-3404-0006
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