There is widespread market speculation that a number of debt-saddled companies could face delisting from the bourse next year as the financial authorities are pushing for a full-fledged corporate restructuring.

According to securities analysts many companies with high debt-to-equity ratios are alert to the possibility that the Korea Exchange and the Financial Supervisory Service will conduct reviews of their financial statements in a conservative manner.

“According to rumors in Yeouido (financial district in Seoul), a large number of firms could be driven out of the market next April,” said a research analyst.

The Korea Exchange, the operator of the KOSPI and KOSDAQ indexes, usually take a decision on delisting based on the annual reports, which are submitted by companies between January and March.
 

In the wake of the prolonged economic slowdown, many firms have been suffering capital erosion, analysts noted.

Players with a 100-percent impairment of capital will be immediately delisted in April. In addition, those with more than a 50-percent capital erosion for two consecutive years could be included in the blacklist.

An official of the FSS said that the number of firms with potential risks could reach 250 -- the number of companies which saw the ratio of their operating profit to interest cost stay under 100 percent.

‘Even if many of them do avert a delisting, some of them have severe cash flow problems which could eventually trigger critical capital erosion,” he said.

But the official downplayed the feasibility of a massive delisting next year. “As a preemptive step against delisting, they could be designated as stocks under administrative supervision. In other words, most of them will need to prioritize in securing cash by pushing for active redemption of their maturing debt.”

A listed company in the chemical sector saw its ratio of operating profit-to-interest cost reach minus 265,350 percent, according to a stock brokerage firm.

Earlier this week, the FSS picked 175 small- and medium-sized enterprises to be placed under debt restructuring this year as part of government-led efforts to sort out highly indebted firms and prevent their sudden collapse.

The number of debt-heavy firms selected for 2015 rose by 50 to 175 from a year earlier, with 70 of them being given a rating of “C” and the remaining 105 graded “D.”

The C-rated companies are subject to a debt workout program led by their creditor banks, while those given a D have no potential to stay afloat.

As part of its regular corporate oversight, the FSS releases the watch list of highly indebted companies once a year based on a survey on 17,594 SMEs conducted by local creditor banks between June and October.

By Kim Yon-se (kys@heraldcorp.com)