Financial Services Commission Chairman Lee Eok-won delivers congratulatory remarks at a public seminar on dual-listing reform held at the Korea Exchange in Yeouido, Seoul, on April 16. [Yonhap]
Financial Services Commission Chairman Lee Eok-won delivers congratulatory remarks at a public seminar on dual-listing reform held at the Korea Exchange in Yeouido, Seoul, on April 16. [Yonhap]

As financial regulators move to enforce restrictions on dual listings, companies that raised capital from financial investors on the promise of an IPO now face repayment demands potentially running into the hundreds of billions of won.

Under dual-listing guidelines released Monday by the Financial Services Commission and the Korea Exchange, the restrictions cover not only subsidiaries created through physical spin-offs but also those acquired or newly established. Spin-off subsidiaries require mandatory shareholder approval from the parent company's shareholders. For acquired or newly established subsidiaries seeking a listing, companies must either obtain shareholder consent or, absent such consent, submit to an individual review by the exchange to determine whether fiduciary duties to shareholders were met.

The capital markets industry has pushed back, calling the rules overly restrictive. Critics say the guidelines focus on "procedures" — shareholder meetings, board approvals, special committees and exchange reviews — rather than clearly defining which industries or transaction types qualify for exceptions, amounting in effect to a blanket prohibition.

"We understand the need to protect retail investors, but if the guidelines had been phased in more gradually or allowed even temporary exceptions based on industry type or how a subsidiary was formed, market uncertainty would have been far lower," an investment banking industry official said.

The most immediate pressure falls on companies that raised funds from private equity funds and asset managers with a contractual IPO deadline. They now face a choice: push ahead with a listing under the tightened rules or return the financial investors' capital. Companies that pledged listings by 2026 or 2027 must find alternatives quickly. That could mean the parent company or the target company injecting funds directly to facilitate a financial investor exit, or seeking new investors. Given that the internal rate of return guaranteed at the pre-IPO stage typically runs between 5 and 10 percent, the repayment burden — principal plus accumulated returns — could reach hundreds of billions of won.

LS Group's LS MnM and LS Essex Solutions are prominent examples. LS MnM raised 470 billion won ($307 million) through an exchangeable bond investment from JKL Partners in 2022, with a commitment to pursue a listing by August 2027. LS Essex Solutions secured a 295 billion won pre-IPO investment from a consortium of Mirae Asset Global Investments and KCGI last year and immediately attempted a listing, only to withdraw its application entirely in January. Its contractual listing deadline runs until August 2030, giving it relatively more time, but the large-scale investment and business expansion it had planned around the IPO are now in jeopardy.

"There had been some expectation that the delayed release of the guidelines might mean a softer version than originally anticipated, but the outcome fell short of market hopes," another investment banking official said. "Companies with imminent listing deadlines face significant pressure to be the first to navigate the tightened rules, so there is a strong likelihood they will begin discussions on buying back shares or bringing in additional investors."

Some companies have already repaid their financial investors or begun doing so in stages. SK Eco Plant returned capital to financial investors including Eum Private Equity and Premier Partners in June. The consortium had invested 800 billion won in 2022 — 200 billion won in existing shares and 600 billion won in convertible preferred shares. SK Eco Plant had pledged a listing by July 2026, but accounting issues compounded by the dual-listing restrictions made an IPO untenable. SK and SK Eco Plant ultimately returned 1.05 trillion won, covering the original principal plus interest.

Tmap Mobility, a subsidiary of SK Square, still faces unresolved financial investor negotiations. It raised a total of 400 billion won from Affirma Capital and Eastbridge Partners in 2021. Its IPO target, originally set for 2025, has been pushed back to 2027. Tmap Mobility bought back roughly half of the shares held by its financial investors earlier this year.

Beyond the immediate repayment burden, concerns are also mounting that the new rules will narrow funding channels for emerging industries. South Korean listed conglomerates have long financed new businesses requiring heavy capital expenditure — in semiconductors, batteries, hydrogen and environmental sectors — by raising funds tied to future listings of subsidiaries. Parent companies often cannot cover the scale of investment required through their own cash generation and borrowing capacity alone.

"In the United States, the capital markets are large enough that even unlisted subsidiaries can raise funds relatively easily. But Korea's industrial portfolio is far more diverse than Taiwan's or Hong Kong's, and that has been overlooked," an investment banking official said. "Given the size of Korea's capital markets and its industrial structure, dual listings are unavoidable."


park.jiyeong@heraldcorp.com