At the third seminar on improving the system for duplicate listings held by the Korea Exchange (KRX) on the 27th, market participants continued to clash over the direction of regulating duplicate listings of subsidiaries. There was broad consensus on the need to strengthen protections for ordinary shareholders, but clear differences emerged over the actual intensity of regulation and how it should be applied.
In particular, institutional investors argued that duplicate listings should, in principle, be restricted to resolve the Korea discount, while the securities industry and the venture capital (VC) and private equity (PE) industries countered that a flexible system design is needed that reflects the realities of ventures and holding companies. There was also continued back-and-forth over how far to mandate protections for ordinary shareholders.
Wang Su-bong, a professor at Ajou University who delivered the day's presentation, proposed imposing five obligations on the parent company's board of directors: ▲ assessment of shareholder impact ▲ preparation of shareholder protection measures ▲ shareholder communications ▲ pro-con voting and notice ▲ disclosures. He stressed the need to establish a special committee centered on independent outside directors to enhance the objectivity of shareholder impact assessments and procedural fairness.
Institutional investors called for stronger regulation. Chief Executive Officer Lim Seong-yoon of Dalton Investment and Chairman Lee Chae-won of Life Asset Management argued that duplicate listings are a key cause of the Korea discount and emphasized the need for principled restrictions. In particular, to protect the rights and interests of ordinary shareholders, some also argued that instead of leaving it to the board's discretion, substantive shareholder consent procedures such as a minority-of-minority (MoM) majority should be mandated.
Lim said, "Because Korea has a structure in which controlling shareholders wield strong power, relying only on a self-regulating board has limits in protecting ordinary shareholders," adding, "New duplicate listings should, in principle, be banned." Lee also said, "Given Korea's unique chaebol-centered governance structure, stronger regulation than overseas is necessary."
By contrast, the VC and PE industries and the securities industry expressed concern about across-the-board tougher rules. Industry voices warned that regulating ventures, mid-sized companies, and pure holding companies under the same standards could lead to reduced investment and tighter funding.
Kim Chang-gyu, CEO of Woori Venture Partners, said, "For VCs, the exit market is most important, and duplicate listings regulations could lead to reduced investment," adding, "Exception clauses or grace periods are needed for ventures, small and mid-sized companies." Park Byung-gun, CEO of Daishin Private Equity, also said, "Listings of subsidiaries by pure holding companies need to be approached under separate standards."
Wang Tae-sik, a Deputy Minister at NH Investment & Securities, explained, "Since many large corporations have a pure holding company structure, there are aspects that make subsidiary listings unavoidable."
From the standpoint of corporations, questions were raised about the legal basis and effectiveness of the regulations. Vice Chairman Jeong Woo-yong of the Korea Listed Companies Association pointed out, "Because MoM and the 3% rule have no basis under current law, excessive regulation could lead to reduced corporate investment."
From academia and the legal community came the view that a balance is needed between shareholder protection and market realities. Choi Byung-gyu, a professor at Konkuk University Law School, agreed on the need to establish special committees and strengthen independent reviews, but took a cautious stance on mandating shareholder consent procedures for ordinary shareholders. Attorney Kim Hyun-jung at BAE, KIM & LEE LLC also said a flexible system design is needed that takes into account overseas listing cases and the structures of ventures and holding companies.
The exchange threw its weight behind the view of a "principled ban on duplicate listings." Executive Director Lim Heung-taek of the Korea Exchange (KRX) said, "Standards for protecting shareholders should not change just because they are ventures or mid-sized companies." The exchange is currently gathering market opinions and is coordinating a final plan with a goal of implementation in Jul.