The Korea Exchange (KRX) has begun full-fledged discussions on improving the system for duplicate listings. The core question is how to prevent harm to the rights and interests of ordinary shareholders of the parent company during a subsidiary's listing. At a seminar held on the 20th, arguments that "strong regulation is needed to resolve the Korea discount" and concerns that "the corporate investment and IPO markets could contract" clashed head-on.
Nam Gil-nam, a senior research fellow at the Korea Capital Market Institute, who delivered the keynote, explained the background of the discussion as "securing procedural legitimacy to prevent damage to the interests of parent company shareholders." Rather than uniformly banning duplicate listings themselves, he said an institutional device is needed to allow them as an exception when parent company shareholders consent. The key issues boil down to two: to what extent to mandate parent shareholder consent when a subsidiary lists, and, if shareholder consent is required, by what method it should be obtained.
Three options were presented for the level of mandating shareholder consent. The first is a "board duty–centered" approach that voluntarily seeks shareholder consent; the second is "partial mandatory shareholder consent," under which the exchange would require shareholder approval when it determines the risk of harming parent shareholder value is high; and the third is "full mandatory shareholder consent," which would require shareholder approval for most duplicate listings except in cases such as when the subsidiary is very small compared with the parent.
There were also three methods for obtaining shareholder consent. They are: a "special resolution," which has been used as a decision-making device in corporate mergers, partitioning, and articles-of-association amendments; a "3% rule–applied ordinary resolution," which limits the voting rights of the largest shareholder; and a "majority of minority (MoM)" method that requires a majority of the non–controlling shareholders.
In particular, a heated debate continued between activist funds and the private equity (PE) and venture capital (VC) industries over whether to introduce the MoM method. Kim Hyeong-gyun, head of division at Tcha Partners, said, "Subsidiary initial public offerings (IPOs) have been used as a means for controlling shareholders to maximize group control with a small equity stake," arguing that "full mandatory shareholder consent and MoM introduction are necessary."
Kim said, "While financial investors (FIs) and VCs claim that subsidiary listings are essential for exiting the shares they invested in before the listing, there is another option," adding, "The U.S.-style spin-off, in which the parent company distributes its subsidiary equity to parent shareholders during the IPO process, can be adopted."
Listing while distributing subsidiary equity to parent company shareholders would automatically protect parent shareholders, and although the parent company as a single shareholder would change to multiple shareholders, VCs and PEs would still be able to realize sufficient returns.
On the other hand, the PE and VC industries warned that excessive regulation could undermine industrial competitiveness and the investment ecosystem. Lim Sin-gwon, chief legal officer (CLO) at IMM PE, said, "If duplicate listings are taken as a principle to prohibit, the domestic IPO market itself could eventually shrink," adding, "Whether to pursue a duplicate listing is essentially a management matter for the board to decide." Lim added, "There is concern about excessively granting responsibility-free authority to minority shareholders."
Ko Kang-nyeong, head of division at Kiwoom Investment, argued, "Small and midsize corporations find it difficult to grow without raising external venture capital," and Kim Gyeong-sun, head of IPO at Daishin Securities, also argued, "Considering that shareholder participation in general meetings is low and communication with overseas investors is not easy, this would realistically be regulation that makes listings impossible."
The legal community and academia urged caution. Nam Goong Joo-hyun, a professor at the Sungkyunkwan University School of Law, said, "Rather than approaching duplicate listings as a simple yes-or-no issue, we need to finely distinguish which types are problematic," adding, "A principle of proportionality is needed to vary procedural intensity according to the importance of the matter." Hwang Hyun-il, an attorney at Shin & Kim LLC, also said, "A principled ban and a uniform ban are different," adding, "While the need to protect shareholders is acknowledged, the coherence of the legal system and corporate autonomy must also be considered."
The financial authorities say they will maintain a stance of "principled prohibition with exceptional permission." Ko Young-ho, director of the Capital Markets Division at the Financial Services Commission, said, "The mere claims that it has been customary or is necessary for corporate growth do not prove the validity of duplicate listings," adding, "If the core growth drivers and future profits of the corporation I invested in suddenly fall elsewhere and transfer to another market, investors will find it hard to trust corporations and the market and to invest."
Ko said, "The debate on duplicate listings is not about a specific transaction structure but about trust in the capital market," adding, "We are thinking together about how to handle procedures such as shareholder consent when the exchange independently reviews cases."