To prevent harm to ordinary shareholders from a "split listing," a listed company seeking to list an unlisted subsidiary on the stock market (duplicate listing) must have the parent company's board assess the impact on ordinary shareholders, prepare protection measures, and obtain shareholder consent. The Financial Services Commission prepared duplicate listing guidelines along these lines and decided to further tighten the Korea Exchange (KRX)'s listing reviews.
The Financial Services Commission said on the 6th that it prepared duplicate listing guidelines that impose five board duties based on fiduciary duty to shareholders on a parent company's board when pursuing the listing of an unlisted company it effectively controls, and that introduce strict and specific review standards for duplicate listings.
According to the guidelines, when a listed company pushes for a parent company listing (duplicate listing), the parent company's board must fulfill five duties: ▲ assess the impact of the duplicate listing on the parent's ordinary shareholders ▲ prepare shareholder protection measures ▲ communicate with shareholders and confirm whether shareholders consent ▲ make a final resolution and notify the subsidiary ▲ disclose related information.
First, the parent company's board must objectively assess the impact of the duplicate listing on the parent's shareholders. It must comprehensively evaluate impacts on shareholders, including potential share price declines due to the subsidiary's listing, changes in the parent's equity, the parent's direction in exercising shareholder rights on the subsidiary's future dividend resolutions or expected dividend income, and potential changes in the subsidiary's corporate value, then prepare a shareholder impact assessment and have the parent's board adopt it.
Proposed shareholder protection measures include: ▲ cash dividends and cancellation of treasury shares using proceeds such as from existing shareholder sales ▲ in-kind dividends of subsidiary shares and other subsidiary share distributions ▲ enhancing parent company value through investments in new businesses and profitability improvements ▲ commitments to ban other business partitioning or other subsidiary listings for a set period.
Based on this, the parent must communicate with shareholders and then confirm shareholder consent through a shareholders meeting and other means.
Authorities said, "The most direct way to judge whether shareholder protection efforts are sufficient is how much shareholder consent was obtained," adding, "The standard for recognizing shareholder consent will apply the '3% rule' analogous to the appointment of audit committee members under the Commercial Act." This means voting rights exceeding 3% are restricted, and approval requires a majority of equity present and at least one-fourth of total voting rights.
After the board resolution, the results must be notified to the subsidiary, and fulfillment of obligations must be disclosed step by step. These obligations also apply when listing a subsidiary overseas.
In addition, authorities prepared strict and specific special review standards for duplicate listings that will be reflected in the Korea Exchange (KRX)'s review rules.
To qualify for exceptions to duplicate listings, which are in principle prohibited, the subsidiary must be recognized as having operational and managerial independence from the parent. If the subsidiary's main business depends excessively on the parent, or if decisions on key management matters are effectively made by the parent, it will be difficult to meet the independence requirement.
The Korea Exchange (KRX) will also closely examine protection requirements for parent company investors. Only if the parent board's five duties are faithfully fulfilled and, ultimately, the board has adopted a supporting resolution will it likely clear the exchange's review threshold. It will also review whether shareholder protection efforts commensurate with the need to protect ordinary shareholders have been carried out.
These obligations apply not only to partitioning but also to subsidiaries and affiliates formed through acquisitions or new establishments in parent–subsidiary relationships. In particular, subsidiaries created by physical partitioning must obtain shareholder consent.
However, the duplicate listing review standards will not apply when a listed company conducts a simple spin-off and lists the new entity, when the parent is listed after the subsidiary is already listed, or when a parent listed on an overseas exchange lists its subsidiary on the Korea Exchange (KRX).
The Financial Services Commission emphasized policy flexibility, saying that duplicate listings are not completely banned and may be allowed as exceptions if strict review standards are met, including sufficient protection measures for the rights and interests of ordinary shareholders.
While the Korea Exchange (KRX) will incorporate strict review standards into its rules, situations vary by corporation, so it will approach cases individually rather than applying uniform standards. The Financial Services Commission added, "The reason for issuing the guidelines is to improve corporations' predictability," and said, "We will regularly supplement the guidelines based on actual review cases."