SOUTH KOREA Law and Practice Contributed by: Ohryung Lee, Joceline Park, Maria Chang and Hakrae Cho, Bae, Kim & Lee LLC
companies listed on the KOSDAQ is 63.1%, which is an increase of 8.7 percentage points from 54.4% in 2023. Recently, the Korean financial authorities have restructured the IPO system to prevent the sharp decline in stock prices of newly listed compa - nies and protect individual investors by expand - ing the allocation of IPO shares to institutional investors with lock-up agreements. Under the revised regulation, effective in March 2025, more than 40% of the institutional investor’s volume (or 30% if the securities registration statement is filed by the end of 2025) must be prioritised for institutional investors with lock-up agreements. If the increase in lock-up for institutional inves - tors leads to a reduction in the circulating stock volume, it may result in greater stock price vola - tility, making it more difficult for venture capital - ists to recover their investments. This could also impact new investments made by venture capi - tal firms, as they often rely on capital recovery to secure investment resources. 6.3 Pre-IPO Liquidity Recently, an atmosphere of active secondary market trading has taken hold in Korea. Due to the recent downturn in the IPO market, inves - tors’ need for exits through secondary sales has increased. In addition, demand for investment through the secondary market is also increasing, as funds of funds have recently allocated their funding to funds that invest through secondary trading. As secondary sales are often powered by funds of funds in Korea, the most important aspect of a secondary market deal is the price negotiation between the seller and the buyer. The seller fund needs to meet the target rate of return, while the buyer fund wants to keep the purchase price
low, considering the expected price at the time of exit. Warranty and indemnity (W&I) insurance policies are sometimes used in these secondary market deals, because the seller is a fund that was not responsible for the operation of the target com - pany and does not want to provide representa - tions and warranties on such matters, nor the corresponding indemnity. Even when the seller is willing to provide such representations and warranties and indemnity, the seller may have been dissolved or liquidated by the time that the buyer wants to exercise this right. The KRX has three markets: KOSPI, KOSDAQ, and KONEX. KOSPI is the market for blue- chip conglomerates (a company with sales of KRW100 billion or more and that satisfies certain criteria including a base market capitalisation of KRW200 billion or more and equity of KRW150 billion or more). KOSDAQ is the market for “medium-sized” companies (ie, a company with KRW5 billion or more in profit from continuing operations before corporate income tax, a base market capitalisation of KRW30 billion or more, and sales volume of KRW10 billion in the most recent fiscal year). KONEX is a market for SMEs. The English versions of the KOSPI Market Listing Regulation, the KOSDAQ Market Listing Regu - lation, and the KONEX Market Listing Regula - tion are available here . In addition, the listing requirements for each market are summarised in English here . 7. Regulation 7.1 Securities Offerings
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