The Democratic Party of Korea is moving to prepare measures to revitalize the capital market after a period of quiet. A plan to normalize the price-to-book ratio (PBR), which President Lee Jae-myung has pointed out multiple times since the last presidential election, is being discussed. Earlier, the Democratic Party pushed through the Commercial Act revision in a National Assembly plenary session, including shareholder duty of loyalty, cancellation of treasury shares, and cumulative voting, and is expected to move to boost the stock market through the so-called "anti-stock-price-suppression law."
Kim Hyun-jung, a Democratic Party lawmaker on the Democratic Party K Capital Market Special Committee, held a forum at the National Assembly Members' Office Building on the morning of the 16th under the theme "Advancing the capital market by mandating disclosures to enhance corporate value for listed companies with PBR below 1." Last month, Kim introduced as the lead sponsor a bill to revise the Financial Investment Services and Capital Markets Act to mandate "value-up disclosures" for listed companies whose PBR has been below 1 for two consecutive years.
PBR is an indicator calculated by dividing market capitalization by shareholders' equity and generally represents the value of a corporation's stock. Corporations with a PBR below 1 are classified as "low PBR corporations." When a corporation with a PBR below 1 is liquidated, its market-assessed corporate value is lower than its asset value. In such cases, a corporation may even move to deliberate delisting, which has been cited as a key example of the Korea discount (undervaluation of the domestic stock market).
Kim said, "Even though stock prices have risen sharply under the Lee Jae-myung administration, the capital market still faces the problem of PBR not even reaching 1," adding, "When corporate value trades below net worth, it means investors do not have confidence in the corporation's ability to generate revenue or in its willingness to return value to shareholders."
Discussions to improve the PBR of domestic corporations began last year. President Lee Jae-myung argued in May of last year, when the presidential election was held, that "(the PBRs of domestic corporations) are not even at the level of underdeveloped or developing countries."
At the time, Democratic Party lawmaker Lee So-young introduced the inheritance and gift tax law known as the "anti-stock-price-suppression law." The core is to assess listed shares with a PBR below 0.8 at 80% of net worth, as if they were unlisted shares, and to levy inheritance and gift tax on that basis. The bill is currently pending in the National Assembly's Strategy and Finance Committee Tax Subcommittee.
Lee Jeong-moon, a Democratic Party lawmaker on the special committee, will also hold a forum on the 21st under the theme "Preventing stock-price suppression and deliberate delisting." Lee is said to be reviewing ways to supplement the existing "anti-stock-price-suppression law" with bills under the jurisdiction of the National Policy Committee. The idea is that, when assessing PBR, factors such as trading volume and the ratio of free-floating shares should also be considered.
Within the special committee, there is an outlook that the Financial Investment Services and Capital Markets Act revision bill introduced by lawmaker Kim Hyun-jung could be handled first, rather than the inheritance and gift tax law introduced by lawmaker Lee So-young. Because Lee's bill involves adjusting the tax system, it should be reviewed over time. In contrast, Kim's bill is seen as more executable because it only strengthens disclosures related to PBR.