Bill to amend the Monopoly Regulation and Fair Trade Act introduced
"Limit excessive double listings, minimize conflicts of interest among shareholders"
Rep. Yoo Dong-su of the Democratic Party of Korea (Incheon Gyeyang-gap, senior vice chairman of the party's policy committee) said Monday he had introduced a bill to amend the Monopoly Regulation and Fair Trade Act that would restrict holding companies from listing subsidiaries already under a listed parent.
Under current fair trade law, holding companies must maintain a minimum stake of 30 percent in listed subsidiaries and 50 percent in unlisted ones. That means a holding company can list a subsidiary while retaining just a 30 percent stake and selling off the remaining 70 percent to outside investors.
Such arrangements have grown more common in recent years, allowing controlling shareholders to expand their grip over corporate groups without injecting new capital — relying instead entirely on outside funding.
Listing a subsidiary also reduces the holding company's ownership stake in that unit, and investors tend to flock directly to the subsidiary holding the more promising business, putting downward pressure on the holding company's share price. The practice has been identified as one of the key drivers of the so-called "Korea discount."
The Korea Fair Trade Commission had already been pursuing a reduction in incentives for double listings by holding companies as part of its regulatory reform agenda, aimed at preventing large conglomerates from expanding their control through irregular means. Rep. Yoo's bill translates that agenda into legislation.
Under the amendment, a mandatory ownership stake of 50 percent would apply whenever a subsidiary or sub-subsidiary of a listed holding company — or a sub-subsidiary of a listed subsidiary — pursues a new listing. The measure is designed to reduce the incentive for holding companies to pursue double listings.
"A decline in holding company value caused by double listings ultimately translates into losses for ordinary shareholders," Rep. Yoo said. "This amendment is intended to curb the easy expansion of controlling shareholders' dominance through excessive double listings and to minimize conflicts of interest among existing holding company shareholders." He added that he would continue working to establish a fair trading order so that South Korea's capital markets can move toward a "Korea premium" era.
bigroot@heraldcorp.com
