Delisting of pharma firm sparks debate on market fairness

The South Korean market operator’s decision to delist a local pharmaceuticals company is raising questions about the fairness in authorities’ action against firms accused of accounting errors, with investors comparing the case to that of Samsung BioLogics.

A panel led by the Korea Exchange, the nation’s sole market operator, suggested Friday the removal of Kyung Nam Pharm, a Seoul-headquartered pharmaceutical company, from the second-tier Kosdaq market, putting the fate of the company in the hands of the Kosdaq Market Committee. 

The panel cited a long-standing opacity in Kyung Nam Pharm’s business operation and a failure to adequately correct accounting errors spotted during the financial years from 2008 to 2013. Such errors resulted in a misstatement of revenue worth a combined 5 billion won ($4.4 million), according to KRX.

If the Kosdaq Market Committee supports the decision before Jan. 8 as planned, only off-exchange trading of its shares will be available immediately, which would cause weaker liquidity.

Some 5,200 shareholders are estimated to have owned over 7 in 10 shares of Kyung Nam Pharm. Its stock transactions have been suspended since March, when its market cap stood at some 211.6 billion won, the 217th-largest out of some 1,200 Kosdaq-listed firms as of Friday.

The KRX decision is stoking criticism, as the same panel the previous Monday decided to normalize the trading of Samsung BioLogics shares, without a probationary period, only a month after its stock transactions were suspended by the Securities and Futures Commission, a state-led market oversight body. A fine of 16 million won was levied on the company’s chief executive.

Samsung BioLogics was accused of misstating profit by a combined 487.8 billion won from the financial years of 2012 to 2014 and arbitrarily inflating the value of shares by 16 times to some 4.5 trillion won, before it went public on the top-tier Kospi market in 2016.

But on Dec. 10, the KRX-led panel decided to resume trading of Samsung BioLogics on Kospi starting Tuesday. Its stock price soared 17 percent in four trading days from Tuesday on Kospi. As of Friday, its market cap amounted to 25.9 trillion won.

On the online presidential petition platform, multiple posts claimed the action by the market authorities is giving “a sense of frustration” to ordinary people by saving those with power and letting down those without power, calling the delistment decision unfair and unjust.

Founded in 1957, Kyung Nam Pharm. is a maker of Korea’s popular vitamin powder “Lemona,” along with other over-the-counter treatments. It went public on the second-tier Kosdaq market in 2001.

In March, the SFC imposed a stock trading suspension on the company on charges of accounting rules violation. The SFC, under the authority of the Financial Services Commission, also levied a fine of 40 million won.

Two months after the measure, the KRX-led committee slapped a six-month probation period on Kyung Nam Pharm to correct its accounting error, while stock trading was suspended. The company submitted proof of actions taken for corrections in November, only to be followed by the market authorities’ decision to delist.

By Son Ji-hyoung 
(consnow@heraldcorp.com)