As authorities have in principle banned corporations' overlapping listings, confusion among corporations is growing as the release of guidelines detailing exceptions has been repeatedly delayed. Corporations that were preparing to list subsidiaries have halted decision-making and are reexamining business plans, and the expense burden from listing delays is steadily increasing.
While holding company shares surged on expectations for regulations on overlapping listings, there are concerns that, as the path to raise funds through initial public offerings (IPOs) is blocked, it will boomerang in the long term into a weakening of industrial competitiveness.
An official at a corporation said, "There is a tendency to equate overlapping listings directly with damage to minority shareholders, and because no concrete plan has been presented on when exceptions would be recognized, plans by corporations that were preparing subsidiary IPOs are at a complete standstill."
◇ Release of overlapping listing guideline keeps getting delayed
The overlapping listing regulatory guideline, which was initially set to be unveiled early this month, is adrift with no timeline set for its release. The financial authorities gathered opinions from experts and industry officials, but differences over the scope of allowable exceptions were larger than expected.
The key issue is the "standard" for exceptional approval. With each corporation's governance and funding needs differing, there are concerns that applying uniform regulations could sap even the growth engines of sound corporations. On the other hand, if exceptions are recognized too broadly, critics say the foundation of the policy of "banning overlapping listings in principle" could be shaken.
In the industry, the core of the guideline is seen as broadly securing the consent of minority shareholders of parent companies and preparing sufficient compensation measures. The starting point of the overlapping listing regulation was the awareness that controlling shareholders list subsidiaries separately without the consent of minority shareholders, lowering parent company value, and that such practices contributed to the undervaluation of the Korean stock market.
For example, Duksan Hi Metal won the consent of a majority of general shareholders for the listing of its subsidiary Duksan Navcours at an extraordinary shareholders meeting on the 15th of last month (92% in favor among shareholders with 78% attendance). A green light came on for the subsidiary listing plan that had nearly foundered amid controversy over overlapping listings. The Duksan Group case became the first in which shareholder consent for a subsidiary listing was obtained after authorities announced the policy to ban overlapping listings.
However, because specific measures such as the level that constitutes "sufficient consent" have not been set, corporations that were preparing subsidiary listings are waiting for the authorities' announcement with their hands tied.
◇ Corporations preparing listings say "nothing is set," uncertainty mounts
The problem is that the longer the guideline release is delayed, the greater the uncertainty and burden corporations must bear. Because subsidiary listings are closely tied not only to existing investors' capital recovery (exits) but also to funding for core businesses, the growing opacity around listing plans is dealing a significant blow to operations.
A representative case is HD Hyundai Robotics. HD Hyundai, which holds 81.82% equity in HD Hyundai Robotics, prepared for a listing, saying, "An IPO is necessary to steadily pursue the robotics business, which requires continuous large-scale investment." In advancing into new businesses that require massive investment, relying on bank loans and corporate bond issuance risks excessively deteriorating the corporation's financial structure.
However, due to regulations on overlapping listings, it halted practical work for the listing in February and is adjusting the schedule. Jeong Kyung-hee, an analyst at LS Securities, said, "If HD Hyundai Robotics resumes its IPO, it will need to prepare compensation measures for existing HD Hyundai shareholders," adding, "Options being discussed include using part of the funds raised from the listing for the holding company's share buybacks and cancellations, special dividends, or giving existing shareholders priority allocation of new shares."
Regarding this, HD Hyundai said, "Nothing has been finalized regarding the HD Hyundai Robotics IPO," adding, "There is no change in our resolve to communicate actively with the market with the protection of parent company shareholder value as the top priority."
◇ Corporations blocked from funding as IPOs shrink
An increasing number of corporations are quickly pivoting to a "plan B," withdrawing subsidiary listings. The first mover was LS Group. LS Group abruptly scrapped the listing plan for Essex Solutions (LS's great-grandchild company). President Lee Jae-myung singled out LS Group's overlapping listing case as a main culprit of the "Korea discount," dealing a direct blow, which proved decisive. LS Cable & System also purchased the remaining equity of LS Eco Advanced Materials, which had initially been slated for listing, and made it a 100% wholly owned subsidiary.
In this process, the expense burden on corporations is growing. Far from raising funds through subsidiary listings, there are frequent cases in which parent companies must directly repay the investments of financial investors (FIs) that were initially attracted on the premise of a listing.
SK Co. also halted the listing process of SK ecoplant, in which it holds 62.1% equity. Instead, it is moving to return funds invested by FIs that participated in the 2022 pre-IPO. In April, SK Co. bought 198.5 billion won worth of common shares and 199.9 billion won worth of convertible preferred shares (CPS) held by FIs, and SK ecoplant also plans to acquire the remaining CPS of about 650 billion won in the form of treasury shares.
A securities industry official said, "With overlapping listings banned, the IPO market itself has frozen, and as the fundraising channel through listings is blocked, corporations are unable to secure sufficient funds to invest in future businesses," adding, "While this is favorable for the stock market in the short term, if corporations' investment capacity shrinks and business competitiveness worsens in the mid to long term, it will erode existing shareholder value."