The Korea Exchange (KRX) has begun full-fledged discussions on improving the system for duplicate listings. The key issue is how to prevent harm to the rights and interests of a parent company's general shareholders during a subsidiary's listing process. 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 market could shrink" clashed head-on.
Nam Gil-nam, a senior research fellow at the Korea Capital Market Institute who delivered the keynote, described the background of the discussion as "securing procedural legitimacy to prevent harm to parent company shareholders' interests." Rather than uniformly banning duplicate listings themselves, he said an institutional mechanism is needed to allow them as exceptions when there is consent from the parent company's shareholders. The core issues are broadly twofold: to what extent shareholder consent from the parent company should be mandated when listing a subsidiary, and, if shareholder consent is to be obtained, by what method it should be obtained.
Three options were presented for the level of mandatory shareholder consent. The "board duty-centered" approach, under which the board voluntarily seeks shareholder consent; "partial mandatory shareholder consent," under which the exchange requires shareholder consent if it deems there is a high possibility of damage to the parent company's shareholder value; and "comprehensive mandatory shareholder consent," under which shareholder consent is required for most duplicate listings except in cases where the subsidiary is very small compared with the parent.
There were also three methods for obtaining shareholder consent. "Special resolution," which has been used as a decision-making mechanism for corporate mergers and partitioning and articles of incorporation amendments; "general resolution with the 3% rule," which limits the voting rights of the largest shareholder; and the "majority of minority (MoM) method," which requires the consent of a majority of general shareholders excluding the largest shareholder.
In particular, there was a heated back-and-forth over whether to introduce the MoM method between activist funds and the private equity (PE) and venture capital (VC) industries. Kim Hyung-gyun, head of division at Tcha Partners, said, "Initial public offerings (IPOs) of subsidiaries have been used as a means for controlling shareholders to maximize group control with a small equity stake," adding, "Comprehensive mandatory shareholder consent and adoption of MoM are necessary."
Kim said, "Financial investors (FIs) or VCs argue that listing a subsidiary is essential to exit the shares they invested in when the company was unlisted, but there are other options," adding, "If the U.S.-style spin-off method is used to allocate the equity in the subsidiary held by the parent company to the parent company's shareholders during the IPO process, that would suffice."
If the listing proceeds while distributing equity in the subsidiary to the parent company's shareholders, protection of the parent company's shareholders would be achieved automatically, and although the single shareholder parent company would change to multiple shareholders, VCs and PEs would still be able to exit their investments sufficiently.
By contrast, the PE and VC industries expressed concern that excessive regulation could undermine industrial competitiveness and the investment ecosystem. Lim Shin-kwon, chief legal officer (CLO) of IMM PE, said, "If duplicate listings are taken as a principle ban, Korea's IPO market itself could ultimately contract," adding, "Whether to pursue a duplicate listing is essentially a management matter for the board to decide." Lim added, "There is concern that excessive, responsibility-free authority would be given to minority shareholders."
Ko Kang-nyung, head of division at Kiwoom Investment, argued, "Small and midsize corporations find it difficult to grow without raising outside venture capital," and Kim Kyung-soon, head of IPO at Daishin Securities, also said, "Considering the low participation rate of shareholders in general meetings and the difficulty of communicating with overseas investors, this would become a regulation that would make listings practically impossible."
The legal and academic communities urged caution. Namkung Joo-hyun, a professor at Sungkyunkwan University Law School, said, "Rather than approaching duplicate listings as a simple for-or-against issue, we need to carefully distinguish which types are problematic," adding, "A principle of proportionality that varies procedural intensity depending on the importance of the matter is needed." 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 recognized, consistency within the legal system and corporate autonomy must also be considered."
Financial authorities said they will maintain the stance of "principled ban, exceptional allowance." Ko Young-ho, director of the Capital Markets Division at the Financial Services Commission, said, "Claims that duplicate listings are justified simply because it has been customary or needed for corporate growth do not prove their validity," adding, "If the core growth engine and future profits of a corporation I invested in suddenly fall elsewhere and are transferred to another market, investors would find it hard to trust corporations and the market and to invest."
Director Ko said, "The debate over duplicate listings is not about a specific transaction structure but about trust in the capital markets," adding, "We are also considering how to handle procedures such as shareholder consent when the exchange conducts an independent review."