The announcement of guidelines prohibiting dual listings is imminent. Since the inauguration of the Lee Jae-myung administration, the enhancement of the capital market and shareholder value has emerged as a key policy priority, prompting financial authorities to accelerate regulatory reforms. While there is optimism that this will curb the longstanding practice of dual listings in South Korea, concerns persist that it may stifle companies' investment capabilities.
When a parent company is already listed, adding a profitable subsidiary can dilute the value for existing shareholders. A notable example occurred during the listing of LG Energy Solution, which faced backlash from LG Chem shareholders. Similar controversies have arisen around the listings of affiliates by SK, Kakao, and POSCO.
The intention of financial authorities to strengthen shareholder protection is understandable. The frequently discussed "Korea Discount" is also linked to inadequate protection for minority shareholders. It is true that many foreign investors have raised questions about the governance structures of domestic companies.
However, there are practical considerations to address. The industrial structures of the United States and South Korea differ significantly. The U.S. stock market is dominated by finance, platforms, software, and high-tech companies, with a well-developed startup ecosystem and venture capital market. Promising businesses have diverse avenues for securing growth funding, even without separating from their parent companies.
In contrast, South Korea is a manufacturing-centric nation. Most emerging industries, including semiconductors, batteries, future vehicles, and robotics, require substantial capital investment. From research and development to building production facilities, astronomical funding is necessary. Consequently, many companies have relied on subsidiary listings to secure growth capital.
For instance, LG Energy Solution has utilized funds raised from its listing to expand its North American production base and develop battery technology. SK On is also keeping the door open for a potential listing to secure large-scale investment resources. The recently highlighted sectors of robotics, artificial intelligence (AI), and biotechnology will inevitably require significant capital in the future.
A blanket ban on dual listings could reduce the ability to raise investment funds for future projects, potentially leaving South Korean companies at a disadvantage in the fiercely competitive high-tech industry.
Shareholder protection and industrial competitiveness are not mutually exclusive; both are important. The key lies in finding a balance.
Rather than an outright ban, reasonable regulation could serve as a practical alternative. If subsidiary listings are unavoidable, opportunities for existing shareholders to receive priority allocations could be expanded, and procedures to objectively verify any potential dilution of parent company shareholder value could be strengthened. Exploring measures such as independent board reviews and enhanced protections for minority shareholders, similar to practices in the U.S. and Japan, could also be beneficial.
Above all, it is crucial to avoid a regulatory overreach. Addressing market dissatisfaction with specific cases by viewing all dual listings negatively poses risks. Simply applying foreign examples without considering the industrial realities of a manufacturing-centric nation like South Korea could lead to unintended consequences.
The purpose of the capital market extends beyond just protecting shareholders; it also plays a vital role in supporting corporate growth and industrial development. It would be detrimental if the pursuit of enhancing shareholder value stifles the seeds of future growth potential.
The guidelines on dual listings will significantly impact the South Korean capital market and industrial competitiveness. Financial authorities must find a balance between the goal of restoring market confidence and the reality of fostering corporate growth. As the saying goes, excessive regulation or indiscriminate allowances are not solutions. What is needed now is a sophisticated regulatory framework that reflects industrial realities rather than a principle-less ban.
* This article has been translated by AI.
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