The long-awaited 'dual listing guidelines' were released on July 6, drawing significant attention from the business and venture sectors. The government established a policy in March stating 'principle of prohibition, exceptions allowed' regarding dual listings. The guidelines provide detailed instructions for dual listings, indicating that companies will face stricter and more thorough reviews before being permitted to list again.
According to the financial authorities, companies seeking dual listings will be subject to special review criteria rather than standard listing requirements. In addition to examining whether the parent company's board has considered shareholder rights and implemented protection procedures, the review will also assess the subsidiary's operational and managerial independence, the necessity of the listing, and the overall benefits to corporate value compared to disadvantages for common shareholders.
Business and venture sectors have described the review process as 'microscopic' and akin to 'passing through a needle's eye.'
The scope of the dual listing regulations applies to cases where a listed company effectively controls or is economically identical to an unlisted subsidiary that is being relisted. This includes subsidiaries where the parent company holds more than 20% of the shares and those where the subsidiary holds more than 50% of the shares in a grandchild or great-grandchild company. However, cases where a subsidiary is listed first and the parent company follows, or where an existing listed company conducts a capital increase, are excluded from these regulations, as they do not create a structure that discounts the parent company's stock.
To enhance the fairness of shareholder protection procedures, the parent company's board must undergo prior review by an independent special committee when fulfilling five key obligations. This committee must consist of at least three directors or qualified external experts, with the chair being an outside director or having at least two-thirds of the committee made up of outside directors and external experts.
Shareholder approval will apply the '3% rule' similar to that used for appointing audit committee members. The voting rights of the largest shareholders and related parties will be limited to 3%, and approval must meet both a majority of attending shareholders and at least one-fourth of total voting rights. Conversely, if shareholder approval is not obtained, the effectiveness of protection measures such as increased dividends, stock buybacks, or in-kind dividends proposed by the company will be subject to individual review.
The necessity of the listing will be assessed not only based on funding needs but also by comparing the benefits gained from the listing against the disadvantages incurred by common shareholders. If the purpose is to recover financial investors (FIs) or maintain control over the parent company, it will undergo strict scrutiny. However, if the need for independent funding for research and development or overseas expansion is recognized, the justification for the listing may be strengthened.
Notably, while the guidelines present quantitative criteria, they maintain a strong emphasis on 'case-by-case review.' For subsidiaries with low proportions of sales, operating profit, and assets—less than 10% compared to the parent company—shareholder approval is not required. However, even if they fall into this category, if they are recognized as significant subsidiaries in terms of expected corporate value or are part of a physical division, shareholder approval will still be necessary.
In advanced industries, while acknowledging the relative importance of funding, they are not uniformly exempt. However, for industries requiring large-scale investments, such as artificial intelligence (AI), biotechnology, and semiconductors, the potential for increased subsidiary value to lead to long-term enhancement of parent company value and the interests of common shareholders will be comprehensively considered.
The scope of application has also expanded beyond initial expectations. When listing a subsidiary on a foreign exchange, the parent company's board must fulfill the same obligations to protect shareholders. The Financial Services Commission explained that even for overseas listings, if the domestic parent company must submit a securities registration statement, the Financial Supervisory Service will review it, and violations of disclosure obligations could result in penalties, including fines and trading suspensions. Reverse listings that utilize mergers to achieve listing benefits will also be subject to the same criteria if they fall under dual listing regulations.
The government aims to effectively operate the dual listing system in line with the intent of shareholder protection obligations. The Financial Services Commission plans to regularly update the guidelines every six months to address potential regulatory evasion by companies or emerging new issues.
* This article has been translated by AI.
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