Under the Financial Services Commission and Korea Exchange's system of "banning duplicate listings in principle while allowing exceptions," the first case has passed the preliminary listing review. As subsidiaries that pursued an initial public offering (IPO) with the consent of their parent companies' general shareholders cleared the exchange's review, the decision is expected to serve as a benchmark for future duplicate listing reviews.
According to the Korea Exchange (KRX) on the 20th, the KOSDAQ market listing committee approved the preliminary listing reviews for Duksan Hi Metal's subsidiary Duksan Navcours and DASAN Networks' subsidiary DTS on the day. As a result, the two companies will file a securities registration statement with the Financial Supervisory Service, then proceed with the offering process, including demand forecasting for institutional investors and a public subscription for retail investors.
Both companies share the common trait of being subsidiaries of KOSDAQ-listed firms. Duksan Navcours develops navigation systems and anti-jamming equipment in the defense and aerospace sectors, while DTS is an industrial equipment company that produces air-cooled heat exchangers.
The recent overhaul of the duplicate listing system released by the Financial Services Commission and the Korea Exchange (KRX) was applied for the first time to this approval. Financial authorities limited duplicate listings in principle but revised the system to allow exceptions when the procedures to protect general shareholders were faithfully carried out.
To qualify for an exception, the consent of the parent company's general shareholders must be secured. Applying a "3% rule" similar to the appointment of audit committee members under the Commercial Act, the voting rights of the largest shareholder and related parties are capped at 3%, after which shareholder approval must be obtained.
Duksan Hi Metal held an extraordinary shareholders' meeting in May and approved the agenda for listing Duksan Navcours. The approval rate was 92.7% based on the shares with voting rights and 72.8% based on total outstanding shares. DASAN Networks also passed the agenda for listing DTS as a special resolution at an extraordinary shareholders' meeting held last month. A total of 90.3% of the shares exercising voting rights supported the proposal.
Both companies have emphasized that this differs from a "split listing," in which an existing business is carved out and listed. They said there is little concern about harming the value of general shareholders because the subsidiaries were incorporated through acquisitions and their businesses differ from those of the parent companies.
The preliminary listing review period was also significantly longer than for ordinary corporations. DTS filed for review in September last year, and Duksan Navcours did so in November of the same year, but it took about eight to 10 months to win approval. Compared with the usual roughly 45 business days, the period was much longer, which is seen as a result of the process of establishing the new duplicate listing standards.
Through this reform, financial authorities also strengthened the parent company board's duties to protect shareholders. The board must assess the impact of a subsidiary's listing on general shareholders and prepare protection measures, and, if necessary, obtain consent through a shareholders' meeting. In addition, an independent special committee must be established to review related agenda items in advance, and the execution status at each stage must be disclosed.
The market expects that the passage of this preliminary review will have a considerable impact on other subsidiary IPOs whose reviews have been delayed by duplicate listing issues. However, during the offering process, the appropriateness of the valuation and the effectiveness of measures to protect parent company shareholders are expected to be verified once again.