"This Is Why the Korean Stock Market Lags" Chronic Undervaluation Cause to Disappear... "Duplicate Listings Virtually Banned"

Government Moves to Principally Ban Duplicate Listings
Exceptions Allowed Only When Operational and Managerial Independence, Investor Protection Are Met
Acquisitions and New Subsidiaries to Be Reviewed Alongside Spin-off Listings

The government will effectively prohibit 'duplicate listings,' which have long been cited as a chronic cause of undervaluation in the Korean stock market. Not only will simple spin-off listings via physical or equity splits be restricted, but listings through acquisitions or newly established subsidiaries will also be considered duplicate listings and subject to significantly stricter screening.

Government and Exchange to Push for Principle Ban on Duplicate Listings

The Financial Services Commission and Korea Exchange held a 'Duplicate Listing System Improvement Seminar' at the Korea Exchange Conference Hall in Yeouido, Seoul, on the morning of April 16, and announced newly established screening standards for duplicate listings.

Im Heung-taek, Managing Director of the Korea Exchange, who served as the presenter, said, "Going forward, duplicate listings will be prohibited in principle except in extremely exceptional cases," adding, "We will establish special provisions for duplicate listings in the relevant qualitative screening standards to clearly define the subjects and criteria for review." Im also explained, "When listing a subsidiary, the parent company's board of directors will be given a fiduciary duty to shareholders to broadly protect shareholder value," and, "We plan to revise the relevant listing and disclosure regulations by June."

This announcement by the Korea Exchange details the direction of a principle ban and exceptional allowance for duplicate listings revealed by the Financial Services Commission at the 'Capital Market Stability and Normalization Meeting' presided over by President Lee Jaemyung on March 18. According to the Financial Services Commission, the current listing rules of the Exchange only regulate duplicate listings (so-called split-off listings) after physical or equity splits with an abstract requirement to "faithfully make efforts to protect shareholders." Therefore, the Financial Services Commission and the Exchange have decided that, going forward, not only splits but also acquisitions and newly established subsidiaries under effective control will be regarded as duplicate listings, and only exceptionally clear cases that fully satisfy newly established specific standards will be allowed to list.

The Exchange has set operational independence, managerial independence, and investor protection as new screening criteria, and plans to deny listing if even one of these is not satisfied. Operational independence will be judged based on whether the subsidiary's main business is independent and does not rely on the parent company, while managerial independence will be assessed based on the subsidiary's decision-making and governance structure. Investor protection will be evaluated based on efforts such as shareholder communication and protection.

Lee Okwon, Chairman of the Financial Services Commission, emphasized, "Until now, controlling shareholders in our capital market have easily used duplicate listings as a means to maintain effective control while expanding business divisions and affiliates, whereas general shareholders have not been able to fairly enjoy the growth achievements of subsidiaries," and added, "We will rigorously distinguish between asymmetric duplicate listings, where listing benefits are concentrated among a few, and duplicate listings that create fair and new value for all shareholders, and screen them accordingly."

Duplicate Listings Dilute Corporate Value, Harming Shareholders and the Korean Stock Market

Duplicate listings have been cited as a major factor hindering the rise of the Korean stock market, as they lead to double counting and dilution of corporate value. In Korea, the duplicate listing ratio reached 18% at the end of last year, but after the government effectively blocked duplicate listings this year, it dropped to the 9% range as of last month. Nevertheless, this remains high compared to major countries such as the United States (0.05%), China (2.4%), Japan (4.0%), and Taiwan (2.7%).

At the seminar, Na Hyunseung, Professor at the School of Business Administration at Korea University, who gave a presentation on "Current Status and Implications of Duplicate Listings at Home and Abroad," said, "Duplicate listings create conflicts of interest between ordinary shareholders of the parent company and those of the subsidiary," and pointed out, "In particular, when making decisions where the interests of the parent and subsidiary diverge, transactions between affiliates may be made in favor of the controlling shareholder, inevitably causing losses to one party's ordinary shareholders."

Professor Na added, "Controlling shareholders maintain control and expand their corporate groups by raising external capital through subsidiary listings without additional capital contributions, while ordinary shareholders of the parent company lose direct ownership and control over the subsidiary, and their indirect stakes are also diluted due to duplicate listings."

President Lee Jaemyung has also repeatedly pointed out the problems of duplicate listings. At a luncheon with the Democratic Party's KOSPI 5000 Special Committee on January 22, President Lee stated, "The issue of duplicate listings is a cause of the Korea Discount (undervaluation of the Korean stock market)." On March 18, at the 'Meeting for Capital Market Stability and Normalization,' he again criticized, "The issue of duplicate listings among listed companies is one of the causes of undervaluation in our stock market."

Experts believe that resolving the issue of duplicate listings will lead to a revaluation of the Korean stock market. Lee Namwoo, Chairman of the Korea Corporate Governance Forum, said, "Given that the essence of the duplicate listing problem lies in shareholder protection and the managerial independence of subsidiaries, the government's recent ban is very appropriate," and added, "In particular, imposing a fiduciary duty on the parent company's board to conduct impact assessments and disclosures from the perspective of ordinary shareholders when promoting duplicate listings of subsidiaries is a step ahead of previous policies."

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