Following the recent promulgation of an amendment to the Commercial Act that expands the duty of loyalty to include the company and shareholders, the government and ruling party are pushing for a stricter amendment that mandates the retirement of treasury stock and the introduction of concentrated voting systems (a system where shareholders allocate votes to specific director candidates), causing tension among the business community. Conglomerates with a high proportion of treasury stock are closely monitoring additional amendment movements that could impact their management rights. The business community also expresses concern over regulatory guidelines on duplicate listings through amendments to the Capital Markets Act.
According to the financial information provider FnGuide on the 21st, there are 219 domestic listed companies with a treasury stock ownership ratio of over 10% compared to the total number of issued shares.
The Democratic Party of Korea is promoting an amendment to the Commercial Act that would, in principle, require corporations to retire their treasury stock during the upcoming regular session of the National Assembly in September. This aims to expect an increase in the per-share value and the price-to-book ratio (PBR). The German case of mandatorily retiring treasury stock that exceeds the 10% ownership limit is reportedly being discussed as a strong example.
Group holding companies such as SK, HD Hyundai, LS, and Doosan, which have a treasury stock ownership ratio exceeding 10%, are struggling with how to handle their treasury stock.
The holding company SK of SK Group has a relatively high treasury stock ratio of 25%. Since Chey Tae-won's equity in SK Group is only in the 25% range, retiring treasury stock would make it difficult to defend management rights using treasury stock. SK Group has previously experienced management disputes when the foreign hedge fund Sovereign acquired SK shares and demanded the replacement of Chairman Chey.
Doosan, the holding company of Doosan Group, has a treasury stock ratio exceeding 18%. After the merger proposal between subsidiaries Doosan Bobcat and Doosan Robotics was thwarted by minority shareholder opposition last year, minority shareholders are closely watching for movements regarding governance restructuring and shareholder return policies. Holding companies LS Group (with 13.9% treasury stock) and HD Hyundai Group (with 10.5% treasury stock) are also being pressured by minority shareholders to retire treasury stock.
Decisions on treasury stock disposition have been left to the board of directors since 2011. Before that, stock had to be retired immediately or disposed of within a year. The decision to leave treasury stock disposition to the board reflects a growing concern that there are no management defense measures for domestic corporations amidst increasing attempts by foreign speculative capital to intervene in management, similar to the Sovereign incident with SK Group. Unlike abroad, where golden shares and differential voting rights exist as management defense measures, domestic companies are using treasury stock to defend their management rights.
Efforts to amend the Capital Markets Act to regulate duplicate listings present a burden for corporations. The Democratic Party is considering proposals to prioritize the allocation of some of the public offering shares of a subsidiary when a parent company is already listed. This measure is in response to criticism that shareholders of the parent company suffer losses due to the decline in corporate value if a subsidiary engages in a so-called split listing. The business community is concerned that if listings are blocked, it may hinder the raising of investment funds.
SK Innovation withdrew its plan to list the subsidiary SK Enmove last month. This was because it could not alleviate concerns that SK Enmove's separate listing while SK Innovation held a 70% equity stake would infringe upon the interests of SK Innovation shareholders.
There are projections that HD Hyundai Samho, the only unlisted company among the three shipbuilding subsidiaries of HD Korea Shipbuilding & Offshore Engineering in the shipbuilding and marine sector, will face difficulty in going public for the time being. The holding company's equity stake in HD Hyundai Samho is approximately 81.5% based on common shares.
LS Group is facing delays in pushing for IPOs of unlisted subsidiaries such as LS Power Solution (formerly KOC Electric), LS E-Link, and Essex Solutions due to the controversy over duplicate listings. The listing efforts of Hanwha Energy, which is 100% owned by the three sons of Hanwha Group Chairman Kim Seung-yeon, are also attracting attention due to the issue of succession among major shareholders.