The South Korean government announced a plan to principally prohibit duplicate listings of parent and subsidiary companies to protect minority shareholders and improve the valuation of the domestic stock market.
The South Korean government, addressing concerns over duplicate listings of parent and subsidiary companies, has decided to fundamentally restrict such practices due to the detrimental effects they have on minority shareholders and the structural factors that lead to the under-valuation of the domestic stock market. This decision emerged from a meeting chaired by President Lee Jae-myung focused on stabilizing and normalizing the capital markets. The government's latest strategy aims to promote improvement within the capital market, transitioning from efforts to eliminate the 'Korea Discount' to fostering a recognized 'Korea Premium'.
The proposed changes involve a systematic approach where duplicate listings will be generally prohibited but can be allowed in specific exceptional cases after an extensive reevaluation. The practice of listing a subsidiary while the parent company is already public often negatively influences the parent company's stock price, thereby hurting its shareholders, as exemplified by the recent case of LG Chem's separation of LG Energy Solution, which saw significant stock value decline for invested shareholders due to a non-distribution of shares to them during the spin-off. The government underscores that such practices have left shareholders feeling like outsiders to their investments, highlighting the critical need for regulatory changes.
To address these concerns, the Financial Services Commission plans to develop detailed criteria for assessing any requests for duplicate listings, which will be announced in the second quarter of this year. This will involve establishing clear parameters focused on the necessity of listing, protection for shareholders, and ensuring the independence of management. Companies intending to list subsidiaries will be required to present an impact assessment from the perspective of minority shareholders, ensuring that their interests are adequately protected in the event of any new listings, thereby aiming to re-establish trust and confidence within the capital market framework.
