Listed Companies Accelerate Physical Division Amid Regulatory Moves by Incoming Yoon Administration

8 Public Companies Announce Physical Spin-offs in Q1
Yoon Seok-yeol President-elect Pledges "Strict Restrictions on Listing of Spin-off Subsidiaries"
Also Proposes Granting Preemptive Rights to Existing Shareholders

Financial Sector Warns "Be Aware of Potential Backlog of Listings from Physical Spin-off Companies"

[Asia Economy Reporter Lee Myunghwan] This year, the pace of physical spin-offs among listed companies is accelerating. It is interpreted that companies are speeding up before the government's regulations on physical spin-offs and subsidiary listings, scheduled to be launched next month, come into effect.

According to the Financial Supervisory Service's electronic disclosure system on the 15th, eight companies listed on the KOSPI market announced physical spin-offs in the first quarter of this year. Compared to 28 companies in 2020 and 23 companies in 2021 that announced physical spin-offs on the KOSPI market, this represents a sharp increase.

Physical spin-offs have often been criticized for lowering the stock prices of the original companies, causing losses to the parent company investors. LG Chem's stock price fell 24% after the spin-off and listing of LG Energy Solution on January 27. SK Innovation's stock price, which was 269,000 KRW on SK IE Technology's listing day of May 11 last year, dropped to 194,500 KRW by November 30 of the same year, a decrease of 27.70%. As of the closing price on the 14th, it is still 22.30% lower compared to SKIET's listing day.

As individual investors' backlash intensified, the Financial Services Commission revised the corporate governance report guidelines last month to include the requirement that "if a company's ownership structure changes due to physical spin-offs or mergers, the company must establish policies to protect shareholders and disclose them in the report." Additionally, the possibility of the new government introducing further regulations on physical spin-offs has pressured listed companies to accelerate their spin-off processes. President-elect Yoon Seok-yeol pledged in his campaign to "strictly limit the listing of spin-off subsidiaries" and proposed granting existing shareholders preemptive rights for new shares in cases of spin-off listings. Researcher Kim Su-yeon from Hanwha Investment & Securities analyzed, "The reason companies are speeding up spin-offs now is likely because regulations on physical spin-offs and subsidiary listings were addressed as campaign promises during the presidential election."

The securities industry advises caution as companies that have undergone physical spin-offs may become a backlog of listings. Researcher Kim advised, "(Physical spin-offs) place a burden on existing companies and stock indices because the parent company acts as an incubator while new businesses spin off," and warned, "Attention should be paid to the backlog of companies waiting to be listed after physical spin-offs."

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