SKorea to require shareholder approval for 'splitting' company listings

South Korea's Financial Services Commission (FSC) has introduced new guidelines aimed at curbing "double listing" practices, particularly the controversial method of "splitting" a company's core business into a new entity for separate stock market listing. Effective from this month, companies must obtain shareholder approval before listing a subsidiary created through a partial spin-off. They must also present detailed plans addressing the impact on parent company shareholders and outlining protective measures.

This move addresses a long-standing issue contributing to South Korea's "Korea Discount," where the combined value of parent and subsidiary stocks is often less than the parent company's standalone value. The "splitting" method has drawn criticism for excluding existing shareholders from the growth of the spun-off business, a situation exemplified by the listing of LG Energy Solution after its separation from LG Chem.

The FSC's new framework mandates a "dual verification process." Parent company boards must assess the impact on their shareholders, devise protection measures, confirm shareholder consent, and publicly disclose these steps. An independent special committee, comprising at least three directors or external experts, will pre-review and approve these actions.

“

A calf is bought from a cow, but if the calf's owner is someone else, wouldn't you be angry?

Shareholder approval will be based on a "3% rule," limiting the voting rights of shareholders with over 3% stake to prevent majority shareholder dominance and amplify the voice of retail investors. While shareholder consent is mandatory for subsidiaries from partial spin-offs, it is recommended for other forms of double listing. The Korea Exchange will then apply stricter "special review criteria" for subsidiary listings, examining the parent board's adherence to obligations, shareholder protection efforts, and the independence of the subsidiary to prevent conflicts of interest.

Proposed shareholder protection measures include using funds raised by the parent company for dividends or share buybacks, distributing subsidiary shares to parent shareholders, or investing in new business ventures. Companies can also commit to refraining from further spin-offs or subsidiary listings for a specified period. The guidelines will be finalized after a public notice period and approval from the Securities and Futures Commission and the FSC.

“

Protecting parent company shareholders is the most important thing.