The government and ruling party are moving to implement a 'triple measure' strategy to address the issue of artificial stock price manipulation. First, a list of companies with a notably low price-to-book ratio (PBR) will be publicly released as scheduled in early November. Additionally, a 'Korean-style bear hug' system will be introduced to ensure transparency in merger and acquisition (M&A) information for general investors. The government also plans to actively review improvements to the so-called '5% rule' to enhance the stewardship code for institutional investors targeting low PBR companies.
On September 29, the K-Capital Market Special Committee of the Democratic Party held a working-level meeting with the Ministry of Finance, the National Tax Service, and the Financial Services Commission to discuss legislative measures, including reforms to inheritance and gift tax laws and capital market laws aimed at preventing stock price manipulation. Oh Gi-hyung, chair of the K-Capital Market Special Committee, stated, "The Korea discount phenomenon is occurring due to low PBR companies," emphasizing the need for continued efforts to address the issue, as approximately 60% to 70% of all companies have a PBR below 1.
During the meeting, the government and ruling party agreed to pursue three measures to alleviate stock price manipulation among low PBR companies. The first is the implementation of a 'naming and shaming' system, which aims to encourage companies to voluntarily enhance their value by publicly disclosing a list of low PBR companies. The Korea Exchange is set to release the initial list on November 2.
Legislation to introduce the Korean-style bear hug system is also being pursued. This system aims to enhance information disclosure during M&A processes. When an acquisition attempt occurs, the board of directors of the target company will be required to express their opinions on the acquisition proposal or public tender offer, thereby ensuring transparency for general shareholders and investors. The special committee plans to process related bills by the end of this year.
Additionally, measures will be taken to enhance the stewardship code activities of institutional investors targeting low PBR companies. Oh stated, "We are discussing ways to effectively utilize capital and resolve low PBR issues through communication between institutions and long-term investors, similar to Japan's stewardship code," and emphasized the need to actively pursue improvements to the 5% rule and the joint ownership system, which requires investors holding more than 5% of a listed company's shares to disclose their holdings and intentions. There have been calls to relax this regulation, especially when institutional investors collaborate to enhance shareholder value.
The meeting also included discussions on the government's proposed reforms to inheritance and gift tax laws concerning low PBR companies. The proposal aims to impose a minimum 30% premium on stock valuations for companies that intentionally lower their stock prices to reduce tax burdens. However, there were concerns that the criteria for selecting low PBR companies are excessively lenient, with calls to reconsider the ruling party's proposal by lawmaker Lee So-young (defining low PBR as below 0.8). Oh noted, "We are seeking alternatives within the government and legislative proposals regarding inheritance and gift tax laws and will accumulate various discussions in October to finalize them by November."
* This article has been translated by AI.
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