The Korea Exchange is set to announce guidelines prohibiting dual listings, with the criteria for exceptions being a key focus for the business community. Among the options being considered are special resolutions at shareholder meetings, the 3% rule, and majority voting by minority shareholders (MoM), with the 3% rule emerging as the most likely candidate. Companies are preparing strategies that account for the possibility of dual listings being excluded altogether.
According to industry sources on June 4, the government and the Korea Exchange have established a fundamental principle that any subsidiary seeking to go public must obtain prior consent from the parent company's shareholders.
The challenge lies in determining the level of consent required from parent company shareholders. Given the significance of separating a parent company's new business into a standalone entity for listing, there is consensus among officials and academics that a more stringent approval process than a standard shareholder meeting resolution is necessary.
The Korea Exchange postponed the release of the guidelines from April to June, conducting several closed meetings and public seminars to gather feedback. It is now reportedly deliberating three main proposals.
One possibility is to apply the requirements for special resolutions at shareholder meetings, which typically require approval from two-thirds of attending shareholders and at least one-third of the total issued shares. However, considering that major shareholders and related parties often hold 30% to 50% of shares in domestic companies, experts predict that the voting will likely favor the controlling shareholders over minority shareholders, making the adoption of this option unlikely.
Academics argue that to effectively protect minority shareholders, the MoM system would be the most effective approach. MoM refers to obtaining majority approval at a shareholder meeting attended only by general shareholders, excluding the controlling shareholders. However, this method faces practical challenges, such as meeting quorum requirements without the controlling shareholders present, making its adoption seem improbable.
The most viable option appears to be the 3% rule, which limits the voting rights of controlling shareholders to a maximum of 3% during shareholder meetings concerning subsidiary listings. This approach has already been implemented under the amended Commercial Act, providing legal legitimacy and ease of application.
The business community believes that if any option other than special resolutions is adopted, dual listings for parent companies in the domestic market will become virtually impossible. This is due to the anticipated time and costs required to secure support from half of domestic and international institutions and minority investors.
Many companies have begun preparing responses, assuming the prohibition of dual listings is a foregone conclusion. SK Group, for instance, had planned an IPO for SK Eco Plant, raising 600 billion won from financial investors (FIs) in 2022, but has since decided to withdraw amid dual listing controversies and will repay the related funds to FIs. The group has also been repurchasing FI shares in SK Enmove and SK On to adjust the timing of its IPO.
HD Hyundai Group faces challenges with HD Hyundai Robotics, which was spun off from HD Hyundai and is pursuing a technology-based listing. This case exemplifies the type of dual listing that the new guidelines would prohibit. HD Hyundai Robotics raised 180 billion won from domestic FIs, including the Korea Development Bank, raising concerns about the financial burden on its parent company, HD Hyundai, to repay these funds.
LS Group is also grappling with its decision to withdraw the listing of LS E6 Solutions in January. The group had secured approximately 300 billion won from FIs with the condition of going public by 2030. Given that LS E6 Solutions was originally a Nasdaq-listed company, it may pivot towards the U.S. market. LS MnM, a key affiliate, is also targeting an IPO by 2027, suggesting that LS Group may implement a robust exit strategy linked to the recovery of FI funds starting in the second half of this year.
* This article has been translated by AI.
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