This article was published on Jan. 21, 2025, at 4:48 p.m. on the ChosunBiz MoneyMove site.
The Financial Supervisory Service has elevated the public disclosure review office of listed companies to a bureau. This office had previously restrained stock exchanges between Doosan Enerbility and Doosan Bobcat, as well as a 2.5 trillion won rights issue by Korea Zinc, amid efforts by policy authorities to enhance the value of stocks last year.
With the name change to the public disclosure review bureau, expectations arise that the FSS will scrutinize the securities registration statements of listed companies more closely. A securities registration statement is a document that informs investors about newly issued or sold securities, which takes effect only after approval from the financial authorities.
According to the financial authorities on the 21st, the FSS recently upgraded its public disclosure review office to a bureau through organizational restructuring. The organizational structure of the FSS expands from teams to offices and then to departments, indicating that the status of this office has significantly increased.
The public disclosure review bureau is composed of six teams, including a planning team, a special review team dedicated to mergers, three review teams responsible for securities registration statements by industry, and an investigation team that checks for public disclosure violations. There are 27 employees, with no significant changes compared to the previous public disclosure review office. The FSS explained, "(It consists of about 30 people) since the public disclosure review office was a large team, it was changed to a bureau this time."
The FSS is cautious against overinterpretation of this organizational restructuring, but analysis suggests that the birth of the public disclosure review bureau was significantly influenced by the FSS's actions last year that halted several capital raising plans of companies. Another FSS official noted, "When upgrading a team to a bureau, we review quantitative aspects such as personnel and number of teams, but we also evaluate qualitative aspects such as the importance of tasks."
The public disclosure review office was one of the departments with a good work-life balance last year, but the situation dramatically changed. The immense power of the office was highlighted during the 'Doosan incident,' drawing the attention of market participants.
Last year, Doosan Group announced it would carry out an exchange to give Doosan Bobcat shareholders shares of Doosan Enerbility as part of restructuring its subsidiaries, but shareholders raised objections over the fairness of the exchange ratio. At that time, the FSS publicly criticized Doosan's plans.
Lee Bok-hyeon, head of the Financial Supervisory Service, said, "The fundamental principle of reviewing the securities registration statement is to see if sufficient information is recorded for shareholders to make various decisions, including exercising their rights. If there are shortcomings, we will continuously demand corrections from Doosan."
When exchanging shares, merging, conducting paid-in capital increases, or going public like Doosan, companies must submit securities registration statements to the FSS for approval. The FSS can order listed companies to rewrite securities registration statements without limitation.
If the aforementioned activities proceed without the FSS's approval, it constitutes a violation of the Capital Market Act, and listed companies have no choice but to comply with the corrective directives from the FSS. As a result, Doosan made seven corrections to its securities registration statement, and the share exchange plan is currently on hold.
The public disclosure review office also intervened in the surprise rights offering plans of listed companies last year. In September, Korea Zinc announced a 2.5 trillion won rights issue during a management dispute with the private equity firm MBK Partners. In response, the FSS unusually conducted a 'capital market issue briefing,' warning that it would examine Korea Zinc's rights issue closely. Ultimately, Korea Zinc canceled its capital increase.
After the Korea Zinc case, Kumyang also canceled its rights issue plan under the pressure of the FSS. ISU PETASYS has not yet passed its rights issue report, while Hyundai Motor Securities was the only one to successfully pass after resubmission.
The influence of the public disclosure review bureau is strong even in the initial public offering (IPO) process. Since an IPO involves selling shares to an unspecified number of investors, a securities registration statement must also be submitted at this time. The public disclosure review bureau can question the valuation process of the issuing company in this process. For instance, when setting the offering price, they may require detailed explanations if the valuation model lacks rationality or if comparison groups are set to include major global companies, thus inflating the valuation.
Even this year, the FSS is actively using demands for corrections to securities registration statements. In this month alone, the FSS has required companies like Artipio, CHA Biotech, Austem, and SL Energy to rewrite their securities registration statements.
The reasons why the FSS demands corrected registration statements are fourfold: ▲ the securities registration statement does not follow the required format ▲ there is false information regarding important matters ▲ important matters are not indicated ▲ the content related to important matters is unclear.
In other words, determining the necessity of a capital increase or the appropriateness of exchange ratios is not within the purview of the FSS. This means that if the securities registration statement is prepared according to the required format and investment risks are detailed for investors' rational judgment, the FSS cannot interject.
However, the 'detailed description of investment risk' inevitably involves subjective judgment, which has recently expanded the FSS's area of activity based on this.
There are also concerns internally. The FSS undergoes annual audits by the National Assembly's Political Affairs Committee and regular audits by the Board of Audit and Inspection, which raises the possibility of being pointed out. An FSS official stated, "The legal limits of the organization are narrow, and while we are currently actively reviewing securities registration statements, I worry that we may be seen as overstepping our bounds from the outside."