Government to Unveil Value-Up Program on 26th... Will It Resolve the 'Korea Discount'?

The government will unveil the detailed plan of the 'Corporate Value-Up Program,' announced to resolve the 'Korea Discount,' on the 26th. The core of the program is to encourage companies to voluntarily expand shareholder returns.

Choi Sang-mok, Deputy Prime Minister for Economy and Minister of Strategy and Finance, held his first press briefing with reporters at the Government Complex Sejong on the 16th, marking his 50th day in office, and stated, "We will disclose the Corporate Value-Up Program on the 26th."

The Corporate Value-Up Program was first mentioned at the livelihood discussion presided over by President Yoon Seok-yeol on the 17th of last month, but specific measures have yet to be prepared. The main goal is to improve the corporate value of listed companies with low price-to-book ratios (PBR) to resolve the Korea Discount.

Kim Ju-hyun, Chairman of the Financial Services Commission, revealed specific details during a meeting with securities industry CEOs last month, including ▲ comparative disclosure of key investment indicators (PBR, ROE, etc.) of listed companies by market capitalization and industry ▲ recommendation for listed companies to announce corporate value improvement plans ▲ development of an index composed of excellent companies improving corporate value and introduction of exchange-traded funds (ETFs).

The plan also includes providing tax benefits to companies that voluntarily pursue value enhancement. Deputy Prime Minister Choi said, "We plan to announce an incentive program that can promote companies' voluntary efforts to enhance value," adding, "We are considering including tax incentives that can encourage shareholder return efforts."

In the securities industry, it is pointed out that expanding return on equity (ROE) should be emphasized over price-earnings ratio (PER) to enhance corporate value.

Jung Sang-hwi, a researcher at Heungkuk Securities, noted in a recent report, "Raising the PBR ratio through external government policies or corporate efforts is more likely to be achieved by increasing ROE rather than PER," and Shin Hee-chul, a researcher at Hi Investment & Securities, also stated, "To raise PBR and enhance corporate value, increases in ROE and PER are necessary."

ROE can increase either by raising net income, the numerator, or by reducing total equity, the denominator. Equity reduction usually proceeds by decreasing the number of issued shares, mostly through the cancellation of treasury shares held by the company.

This is also why some speculate that the value-up program might provide tax benefits for treasury share cancellations. However, the Ministry of Strategy and Finance drew a line, stating, "Tax incentives related to the Corporate Value-Up Program have not been finalized."

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