FSS Halts Split IPOs... Jeong Eun-bo "Reviewing Improvements to Physical Division System"

Jung Eun-bo, Governor of the Financial Supervisory Service, is taking a commemorative photo with participants at the private equity fund (PEF) operators' meeting held exclusively for institutions on the 9th at the Kensington Hotel in Yeouido, Seoul. From the left: Kim Kyung-gu, Vice President of Han & Company; Chae In-ho, CEO of Stick Investment; Kim Soo-min, CEO of Unison Capital Korea; Jung Eun-bo, Governor of the Financial Supervisory Service; Park Tae-hyun, CEO of MBK Partners; Kim Young-ho, CEO of IMM Private Equity; Lim Yoo-chul, CEO of H&Q Korea Partners. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporters Ji Yeon-jin and Lee Jung-yoon] Jung Eun-bo, Governor of the Financial Supervisory Service (FSS), recently announced that he is considering improvements to the physical division system, which has sparked backlash from minority shareholders. When LG Energy Solution, an electric vehicle battery manufacturer, was spun off from LG Chem and listed on the KOSPI market last month, LG Chem’s stock price dropped significantly, raising calls among minority shareholders for reforms to the physical division system.

On the 9th, after a meeting with private equity fund industry representatives at the Kensington Hotel in Yeouido, Seoul, Governor Jung told reporters, "The issue of protecting small investors can be addressed not only under the Capital Markets Act but also under the Commercial Act, so the FSS is reviewing improvements to the system." He added, "If the Commercial Act also needs to be reviewed, we must consult with the relevant authorities in charge, and we are currently reviewing the protection of small investors together with the Financial Services Commission (FSC)."

LG Energy Solution, which was spun off from LG Chem’s electric vehicle battery division, faced criticism even before its listing for damaging the value of minority shareholders’ stakes. LG Chem was a blue-chip stock trading above 1 million KRW per share early last year amid growing expectations for the electric vehicle market, but its stock price sharply declined after LG Energy Solution’s listing schedule was announced. The current stock price is around 610,000 KRW, down nearly 40% from last year’s peak.

As a result, other companies that announced plans for physical division have either halted their plans or postponed listings. CJ ENM announced in November last year its plan to establish a new company through a physical division of its content business but announced on this day that it would reconsider. The company stated, "Due to shareholders’ concerns about the physical division and rapidly changing regulatory environments, we are reviewing various options regarding the establishment of the studio."

Governor Jung also addressed the controversy over fictitious bids by institutional investors during the demand forecasting process of initial public offerings (IPOs), saying, "We are closely consulting and reviewing the role of institutional investors with the FSC."

Regarding the recent sole recommendation of Ham Young-joo, Vice Chairman of Hana Financial Group, as the next chairman despite disciplinary actions by the FSS for incomplete sales of derivative-linked funds (DLF), he said, "The chairman recommendation committee must have taken this into consideration when making their decision," adding, "There is nothing specific to comment on that matter."

On the issue of fines for market makers related to price manipulation, he said that once the final analysis is completed, the matter will be discussed by the FSC or the Korea Exchange Surveillance Committee.

Meanwhile, at the meeting with CEOs of private equity fund management companies for institutions, Governor Jung emphasized, "With the new environment in place, I hope you will discover various overseas investment targets to generate high returns and support domestic companies’ overseas expansion," adding, "The FSS will actively support this."

Domestic private equity funds were intensively fostered after the 1997 Asian financial crisis amid concerns that overseas private equity funds, which led corporate restructuring, were causing national wealth to flow abroad.

Governor Jung said, "As the scale of domestic private equity funds has grown, there is a need for overseas expansion," and added, "We will consider easing regulations on special purpose companies (SPCs) established by PEFs (private equity funds for institutions) to allow autonomous fundraising."

This is the first time since the Lime scandal erupted in July 2019 that the FSS governor has met with the private equity fund industry.

Financial authorities have significantly revised the private equity fund system following a series of financial accidents, including the Lime and Optimus scandals, which caused damages amounting to 1.6 trillion KRW. Previously, private equity funds were divided into professional investor types and management participation types (PEFs), and individuals with more than 300 million KRW could invest in all types. However, since October last year, the system was reorganized into general and institution-only private equity funds, with individual investors barred from investing in institution-only funds. Instead, institution-only funds, which were previously limited to management participation purposes, can now adopt various management strategies such as mezzanine financing and loans.

This content was produced with the assistance of AI translation services.