South Korean Public Firms Faces Stricter Rules for Double Listings

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South Korean Public Firms Faces Stricter Rules for Double Listings

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South Korea’s Financial Services Commission (FSC) and the Korea Exchange (KRX) revamped their guidelines for corporate governance reporting on March 6, as reported by the Korea Economic Daily on the same day. The updated guidelines require all KRX-listed companies with over KRW1tr (USD822m) in assets to provide a minority shareholder protection clause in their annual corporate governance report if they seek to create a new entity from one of their business units and launch a double listing on the KRX. Precisely, the protection clause needs to include whether the company listened to the opinions of the minority shareholders and how it plans to secure the rights of dissenting opinion holders. Notably, the South Korean government plans to require all public firms to disclose their corporate governance reports to the KRX by 2026.

As the requirements are not mandatory and listed companies disobeying them will not face the full penalty of law, the South Korean authorities are mulling over a legal framework to prevent minority shareholders from interest loss in double-listing or spinoffs. Specifically, in recent years, many South Korean conglomerates have set up wholly-owned subsidiaries for listing on the same stock exchange. Such spin-offs could lead to a slump in the shares of the parent company, thus damaging the profit of current shareholders who are not eligible for the new entity’s stocks. Also, the stock industry is discussing measures to restrict such spin-offs, such as granting shares of the new affiliate to existing shareholders, offering them priority access to the affiliates’ initial public offerings (IPOs), and giving appraisal rights to dissenting shareholders.