A bill to minimize the side effect of forcing controlling shareholders to sell their equity due to financial companies' cancellations of treasury shares for value-up (enhancing corporate value) is expected to be discussed in the National Assembly soon. The move follows criticism in the financial sector that the recent cancellations of treasury shares by regional financial holding companies, which have led controlling shareholders to sell or soon have to sell their equity, run counter to the purpose of value-up.
According to the financial authorities on the 28th, the Financial Services Commission (FSC) delivered to the National Assembly its view that it "agrees with the intent" of four bills, including the Amendment to the Act on the Structural Improvement of the Financial Industry proposed by Yoon Han-hong of the People Power Party.
The amendment provides that when financial companies cancel treasury shares to enhance shareholder value and a controlling shareholder comes to hold equity in excess of the statutory ownership limit, the shareholder can obtain ex post approval or be granted a grace period for sale. The intent is to grant a grace period of up to two years so that, even if the controlling shareholder's equity ratio exceeds the legal limit due to the cancellation of treasury shares, the shareholder does not have to sell equity immediately.
Yoon said, "We specified that, if the ownership limit is exceeded due to the cancellation of treasury shares, ex post approval may be obtained or a grace period may be provided to bring ownership into compliance," adding, "Through this, we sought to create a flexible institutional environment that can actively promote the cancellation of treasury shares." A senior expert with the National Policy Committee in the National Assembly also expressed, in a review report, the view that introducing the amendment is necessary.
When treasury shares are canceled, the total number of outstanding shares decreases, raising existing shareholders' equity ratios. In the case of financial companies, there is a limit on the shareholding of the same person under the separation of finance and industry. If a controlling shareholder's equity ratio is expected to exceed the shareholding limit due to the cancellation of treasury shares, the controlling shareholder must sell the equity held.
In the case of JB Financial Group, Samyang Corporation, the controlling shareholder, has been continuously selling equity due to the cancellation of treasury shares. On the 2nd, Samyang Corporation sold 200,000 shares of JB Financial (about 4.6 billion won) through a block trade after-hours. In July, Samyang Corporation also disposed of 125,000 shares (about 2.6 billion won) of JB Financial.
This is because Samyang Corporation's equity ratio rose due to JB Financial's cancellation of treasury shares. For regional financial holding companies, the same-person shareholding limit is capped at 15%. With the sale of equity, Samyang Corporation's stake in JB Financial became 14.88%. This is an increase of 0.11 percentage points from 14.77% in July. Although it sold equity, the equity ratio rose due to JB Financial's cancellation of treasury shares. At this pace, Align Partners, the second-largest shareholder of JB Financial (equity ratio 14.46%), will soon have to dispose of shares as well.
OK Savings Bank, a controlling shareholder of iM Financial Holdings, is also expected to soon face a situation where it must sell equity. With iM Bank's conversion to a commercial bank last year, the same-person shareholding limit fell from 15% to 10% under the standard for financial holding companies of commercial banks. OK Savings Bank (7.93%) and its affiliate OK Capital (1.99%) currently hold 9.92% in equity. iM Financial plans to buy back and cancel at least 1.37 million treasury shares within the year. If iM Financial continues to cancel treasury shares, OK Savings Bank will also have to sell its equity.
If a large amount of controlling shareholders' equity is released into the market, it acts as a factor driving stock prices down. Financial holding companies have proposed regulatory easing to the financial authorities to address this value-up side effect. With the FSC agreeing to the legal amendment, the processing of the bill in the National Assembly is expected to gain speed.