As financial authorities sharply strengthen regulations on "duplicate listings," analysts say not only holding companies but also conglomerates engaged in general businesses such as manufacturing, construction, and logistics could benefit. As it becomes harder to spin off subsidiaries and list them separately, the value of business units could be fully reflected in the parent company, easing the stock price discount.
The Financial Services Commission on the 6th announced "duplicate listing guidelines" that lay out parent company obligations and special review standards tougher than those for general listings when a duplicate listing occurs. Under the guidelines, if a listed company seeks to list a subsidiary (duplicate listing), the parent's board must fulfill five obligations: ▲ assess the impact of the duplicate listing on common shareholders ▲ prepare shareholder protection measures ▲ communicate with shareholders and confirm whether shareholders consent ▲ finalize the resolution and notify the subsidiary ▲ disclose related information.
Duplicate listings generally refer to a listed company spinning off a subsidiary as a physical division and listing it separately on the market. The market has long pointed to this as a key Korea discount factor because of "double counting," where the subsidiary's value is reflected in both the parent and the subsidiary, and because subsidiary profits are not sufficiently attributable to the parent's common shareholders.
In particular, authorities expanded the scope of regulation through the new guidelines. They define as duplicate listings cases where a listed company lists an unlisted company it effectively controls, and apply the same standards to parent–subsidiary structures formed not only through physical division but also via acquisitions or new establishments. Reviews will cover not only fresh listings of subsidiaries but also backdoor listings and listings via mergers with special purpose acquisition companies (SPACs).
The market expects the tougher rules to ease some of the discount factors that have applied to holding companies. Because a holding company's subsidiary equity value accounts for most of its corporate value, a separate listing of a subsidiary leads to double counting of value and reduces the profits attributable to the parent's shareholders.
Ahead of the release of the duplicate listing guidelines, the securities industry analyzed that discounts for holding companies such as SK, LG, and LS would be resolved.
Some analysts say the benefits will not be limited to holding companies. Eom Su-jin, a researcher at Hanwha Investment & Securities, said, "Even without a holding company structure, there are many cases where a company exerts significant influence—such as by holding more than 20% equity in an affiliate—and the value of that affiliate accounts for a large share of the parent's net worth," adding, "The benefits of duplicate listing regulations will not be confined to holding companies."
She especially saw strong potential for a revaluation of conglomerates with multiple business units. "Conglomerates with diversified businesses were likely to pursue duplicate listings by physically dividing certain units, but such decisions will now be effectively blocked or heavily constrained," she said. "As each business unit's value is fully attributable to the parent, a corporate value re-rating will be possible."