The government has effectively put a stop to asymmetric dual listings that infringe on the rights of common shareholders in parent companies. To list a subsidiary, companies must now follow stringent procedures to protect the interests of parent company shareholders. Notably, subsidiaries formed through physical division will be required to obtain shareholder approval under the '3% rule,' which limits voting rights for major shareholders. As a result, the threshold for initial public offerings (IPOs) for large corporate affiliates is expected to rise significantly.
On July 6, the Financial Services Commission and the Korea Exchange released detailed guidelines on the 'principled prohibition of dual listings and exceptional allowances.' This follows the government's announcement in March of measures to advance the capital market. The guidelines aim to prevent dual listings and spin-offs, which have been cited as factors contributing to the Korea discount.
According to the guidelines, the board of directors of a parent company seeking to pursue a dual listing must fulfill five key obligations: assess the impact on shareholders, establish protection measures for shareholders, communicate with shareholders and confirm their consent, conduct a vote on the listing proposal, and disclose relevant information. Additionally, to ensure compliance, an 'independent special committee' consisting of at least three directors or external experts must be formed to conduct prior reviews and decisions.
The criteria for shareholder approval, which garnered significant attention for investor protection, will not follow the minority shareholder majority (MoM) model but will instead apply the '3% rule.' This means that the voting rights of the largest shareholder and related parties will be limited to 3%, and a majority of attending shareholders (at least one-quarter of voting rights) must agree for a dual listing to proceed.
The criteria for shareholder approval will vary by type of subsidiary. Subsidiaries formed through physical division must obtain approval from parent company shareholders. For general subsidiaries (acquired or newly established), obtaining shareholder approval will be considered sufficient for investor protection, but those that do not receive approval will face strict scrutiny. However, 'low-weight subsidiaries,' which account for less than 10% of the parent company's revenue, operating profit, or assets, will not require shareholder approval.
Market participants expect that the implementation of these guidelines will improve practices where parent company shareholders suffer due to spin-off listings. As of the end of last year, the dual listing rate in South Korea was 11.2%, significantly higher than in major countries like the United States (0.05%) and Japan (4.0%). However, there are concerns that the increased difficulty of dual listings through physical division may dampen the IPO market. Voices from the venture capital (VC) and private equity (PE) sectors suggest that recovering investment funds through IPOs may become more challenging.
* This article has been translated by AI.
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