Financial Services Commission Blocks Split IPOs... Yoon President's Approval Rating Plummets, A Possible Reversal Card?

March "Voluntary Resolution of Interests" → July "Korina Discount"

Korea Capital Market Institute

[Asia Economy Reporter Ji Yeon-jin] The Financial Services Commission (FSC) has stepped in to curb the practice of "split listings" through physical division. This marks a shift to direct regulation of split listings just over five months after announcing improvements to physical division in March, emphasizing "voluntary resolution of conflicts of interest."

According to the FSC on the 15th, Kim So-young, Vice Chairman of the FSC, stated at the "Policy Seminar on Shareholder Protection Measures for Subsidiaries Listed through Physical Division" held the previous day, "When a subsidiary created through physical division is listed concurrently with its parent company, we will review how diligently the parent company has made efforts to protect shareholders and restrict the listing if found insufficient." Vice Chairman Kim also mentioned plans to strengthen disclosure of subsidiary listing plans during physical division and to introduce a stock purchase right for physical division shares.

However, regarding the issue of preferential allocation of new shares to parent company shareholders when subsidiaries created through physical division are listed, the seminar decided to carefully review the pros and cons and practical limitations before determining whether to implement it. Chairman Kim promised institutional improvements, saying, "The so-called Korea discount problem, where our economy and companies do not receive fair evaluations in the capital market, is such an old issue that the term itself feels clich?."

The split listing controversy arose early last year when LG Chem’s stock price, which had been above 1 million won, plummeted to the 600,000 won range after LG Energy Solution, spun off from its electric vehicle battery division through physical division, announced its listing plan, sparking widespread demands for a ban, especially from individual investors. After LG Energy Solution’s listing in January this year, LG Chem’s stock price further declined, and during the presidential election period, candidates from both major parties rushed to announce pledges to protect small shareholders. The stock purchase right for parent company shareholders during physical division, which the FSC is now pushing, was a key pledge of former Democratic Party candidate Lee Jae-myung. The FSC also released an improvement plan for the physical division system in March, requiring listed companies to disclose shareholder protection policies related to physical division in their mandatory corporate governance reports. At that time, the FSC stated, "While seeking fundamental institutional improvements, we will prioritize implementing measures that allow companies and shareholders to voluntarily adjust their interests."

The stock purchase right for physical division shares can be introduced through amendments to the Enforcement Decree of the Capital Markets Act and can be implemented by government decision. Because of this, as President Yoon Suk-yeol’s approval rating dropped to the 30% range just two months after taking office, there is speculation whether this physical division improvement plan is a card to soothe public sentiment and boost approval ratings.

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