South Korean authorities have moved to restrict listed companies from spinning off certain subsidiaries for public offerings, a measure aimed at curbing long-standing practices accused of diluting shareholder value. The stock market responded positively, with the Korea Composite Stock Price Index (KOSPI) surging 5% and extending gains for a third consecutive session. The announcement was made by Financial Services Commission Chairman Lee Eog-weon during an investor conference in Seoul on Wednesday. KOSPI 200 index futures also rose more than 5%, triggering a temporary halt in program trading to curb market volatility. Lee stated, "We will establish clear standards to ensure that simultaneous listings of parent and subsidiary companies do not harm ordinary shareholders’ interests. Through strict review, we will prohibit duplicate listings in principle." Dual listings often depress the share prices of holding companies and are widely considered one of the structural factors behind the persistent undervaluation of Korean stocks, commonly referred to as the "Korea discount." By banning dual listings, the South Korean government aims to enhance market valuations and narrow the gap with global peers. The move is also part of broader efforts by President Lee Jae-myung’s administration to modernize governance and restore confidence in capital markets. These measures contributed to South Korean equities posting some of the world’s strongest gains last year, though the rally has largely stalled since the Iran conflict, with investors seeking new catalysts. Lee added that to prevent companies from ignoring low share prices, authorities would use measures such as public naming to encourage firms with low price-to-book ratios to enhance corporate value. The market also received a boost from Samsung Electronics’ general meeting on Wednesday, where the chipmaker expressed optimism about the outlook for artificial intelligence demand. Shares of both Samsung Electronics and SK Hynix rose more than 7%. The ban on duplicate listings is not seen merely as a regulatory restriction but as a structural reform targeting the root causes of the Korea discount, according to Kim Namho, managing director at Timefolio Investment Management in Seoul. By preventing the dilution of holding company shareholders’ interests, the policy aims to reduce large conglomerates’ reliance on subsidiary IPOs for funding. Many Korean chaebols have depended on listings of affiliated firms to raise capital. Several major conglomerates, including SK Group, HD Hyundai, and Hanwha Group, currently have plans to list affiliated companies. However, Jung In Yun, CEO of Fibonacci Asset Management Global, suggested that the new rules may limit the spin-off of strong business units into standalone entities. Yun noted, "Large business groups have repeatedly listed their most profitable divisions. This practice dilutes the equity of existing companies and hampers their value growth." Following earlier local media reports about the proposal, shares of holding companies such as CJ Group and SK Group continued to climb. CJ Group shares rose 3.6% on Wednesday, while SK Group shares gained 3.7%. A frequently cited example is LG Energy Solution’s IPO in 2022. LG Chem spun off the fast-growing battery unit at the height of the electric vehicle boom, after which the parent company’s shares fell approximately 9% the following month and entered a prolonged downtrend. Dilin Wu, research strategist at Pepperstone Group, said the new rules would prompt companies to rethink their long-term financing strategies. Wu pointed out that investors now appear more focused on "the valuation premium that better corporate governance can bring, rather than the temporary loss of an IPO window."
Comments