The Democratic Party of Korea and the Presidential Committee on Policy Planning are actively reviewing measures to incinerate treasury stocks held by corporations in principle. The revision bill of the Commercial Act, which includes the fiduciary duty of directors to shareholders, has passed the National Assembly's main session, putting forward treasury stock incineration as the next plan to revitalize the stock market. Given that incinerating treasury stocks was mentioned directly by President Lee Jae-myung during the presidential election, it is expected to gain traction in legislation.
According to a comprehensive report from ChosunBiz on the 7th, the Democratic Party of Korea and the Presidential Committee on Policy Planning have begun discussions on the plan for incinerating corporate treasury stocks. It is anticipated that the plan for the principled incineration of treasury stocks will be discussed under the leadership of Commissioner Oh Gi-hyung, who is the chairman of the KOSPI 5000 Special Committee and a member of the economic subcommittee of the Presidential Committee on Policy Planning. The KOSPI 5000 Special Committee led the revision bill of the Commercial Act, which passed the National Assembly's main session on the 3rd.
The special committee is deliberating on the 'timing' and 'scope' of pushing the treasury stock incineration policy. If corporations are forced to incinerate the treasury stocks they currently hold, the existing governance structure could collapse, so the committee is looking for ways to minimize side effects. It has also set a direction to impose reasonable regulations on existing treasury stocks.
It seems likely that transactions by controlling shareholders transferring treasury stocks to related parties for the purpose of defending management rights will be strictly regulated. In particular, they are closely examining how to handle cases where minority shareholders are not granted subscription rights when treasury stocks are donated to friendly forces to strengthen voting rights. It is also expected that actions of transferring treasury stocks to a third party at a price below net worth will be sanctioned.
Recently, the issuance of exchange bonds (EB) by Taekwang Industrial is a representative example of such actions. Through the issuance of EB, Taekwang Industrial managed to transfer treasury stocks to external investors, securing cash while maintaining corporate control. The disposal price of 24.41% of the treasury stocks is said to be one-fourth of the net worth. On the other hand, minority shareholders could suffer from a drop in stock prices and a decrease in earnings per share as the number of circulating stocks in the market increases.
The ruling party and government aim to create a system that allows for the incineration of treasury stocks without exception. Specifically, it is suggested that when disposing of treasury stocks, it requires special resolutions at the shareholders' meeting to obtain the consent of all shareholders.
It is also expected to mandate proof that treasury stocks sold off-market were sold at fair market value. Additionally, it seems likely that an environment will be created in which treasury stocks must be incinerated by setting holding periods.
The principled incineration of treasury stocks is a campaign promise made by President Lee during the presidential election, stating, "I will institutionalize the principle that treasury stocks of listed companies should be incinerated in order to return to shareholders' interests." This matter is also being intensely discussed within the Presidential Committee on Policy Planning, which communicates closely with the government and ruling party.
The Presidential Committee on Policy Planning stated in a report titled 'Strategies for Real Growth in Korea,' shared internally last month, that it would review ▲ amendments to laws related to treasury stocks and capital markets ▲ principles for incinerating treasury stocks for purposes other than bonuses and stock compensation ▲ setting deadlines for incinerating treasury stocks ▲ granting grace periods for existing treasury stocks ▲ applying share issuance procedures when disposing treasury stocks ▲ including treasury stock rights suspension in mergers and partitioning.
Legislation on the principled incineration of treasury stocks is expected to be attempted as early as the regular National Assembly session in September. On the 3rd, Commissioner Oh Gi-hyung stated at a press conference, "The principled incineration of treasury stocks must be discussed in some form in the second half of this year as it is a presidential promise," adding, "We will prepare to address it in the regular National Assembly session."