Same dual-listing rules, different paths: HD Hyundai Robotics faces shareholder vote while LS Essex Solutions heads to exchange review

Even companies in the same dual-listing category now face different procedures depending on how they got there. Subsidiaries spun off through physical division in effect require general shareholder approval to list, while other dual listings must submit shareholder-protection plans and pass a Korea Exchange review. Unlisted parent companies that already have listed subsidiaries have been carved out of the special dual-listing review process entirely — a refinement that is pushing each company toward its own IPO strategy.

HD Hyundai Robotics faces the toughest constraints under the new dual-listing guidelines, according to the financial investment industry Tuesday. The company was physically spun off from HD Hyundai, selected an underwriter early this year and began pursuing an IPO, but halted the process in March when regulators started discussing dual-listing restrictions.

To move forward with a listing, the company must now obtain approval from HD Hyundai's general shareholders. Financial authorities have decided to apply the so-called "3 percent rule," which caps the voting rights of the largest shareholder and related parties at 3 percent each when a physically spun-off subsidiary seeks to list. The mechanism is designed to limit the controlling shareholder's influence so that ordinary shareholders have a meaningful say in whether the listing proceeds, making it virtually impossible to list without their consent.

LS Group's LS Essex Solutions is another prominent case affected by the new guidelines. The company, which withdrew its listing application in January, was incorporated as a subsidiary through an overseas acquisition rather than a physical spin-off. Because of that distinction, it is classified as a general dual listing rather than a spun-off subsidiary and is not required to obtain general shareholder approval. Instead, its parent company's board must draw up a shareholder-protection plan and submit it for Korea Exchange review.

Financial authorities have divided dual listings into three categories for review: physical spin-offs, general dual listings and low-weight dual listings. Spun-off subsidiaries must secure general shareholder approval. For general dual listings, the parent's board must fulfill a duty of shareholder loyalty — conducting a shareholder-impact assessment, preparing a protection plan, engaging with shareholders, passing a board resolution and making the required disclosures — in lieu of a direct shareholder vote. Subsidiaries whose sales, operating profit and assets each account for less than 10 percent of the parent's are classified as low-weight and are exempt from the shareholder-approval requirement.

Sono International falls outside the scope of the new guidelines altogether. The unlisted parent company holds listed subsidiaries including Tway Holdings, meaning its subsidiaries listed first and the parent is now pursuing its own IPO. Regulators concluded that this structure poses relatively little risk of eroding the value of existing shareholders in the listed subsidiaries and excluded it from the special dual-listing review. The company will still be subject to the standard qualitative review covering business continuity, management transparency and investor protection.

Hanwha Group falls into the same category. Hanwha Energy, an unlisted company in which the three sons of the Hanwha Group founder — Kim Dong-kwan, Kim Dong-won and Kim Dong-sun — hold a combined 80 percent stake, is pursuing an IPO while already having listed subsidiaries. The guidelines exclude from the special dual-listing review any structure in which subsidiaries listed before the parent. Hanwha has also taken the position that the new regulations do not apply to it, since the IPO involves an existing unlisted affiliate rather than a physically spun-off subsidiary.

CoAsia Semi Korea is another company within the guidelines' reach. The company is a subsidiary of Kosdaq-listed CoAsia, which holds a 72.99 percent stake, and has consistently been cited in the market as a potential IPO candidate. It is classified as a general dual listing rather than a physical spin-off, so it is not required to obtain general shareholder approval, but its parent's board must prepare a shareholder-protection plan before the company can undergo a Korea Exchange review.

CoAsia Semi Korea has issued convertible preferred shares worth 86.5 billion won ($56.5 million), which carry a condition that they automatically convert to common shares upon listing on Kosdaq or another exchange. However, since the guidelines were announced, the company has been reviewing how to respond. "We had originally planned to assess the company's position after the final guidelines were confirmed in July, but internal discussions are still ongoing," a CoAsia official said. "No official IPO plan has been finalized yet."

At its briefing, the Financial Services Commission held up Duksan Hi-Metal's subsidiary Duksan Nepcores as a model case of guideline compliance. Duksan Hi-Metal held a separate shareholders' meeting open only to general shareholders in May to obtain approval for the subsidiary's listing, and also put in place shareholder-protection measures including an in-kind dividend of subsidiary shares and an expanded dividend payout. The FSC assessed that the company had in effect met the standards required under the new guidelines, having gone through a board resolution and a general shareholder approval process.

The IPO industry expects the first approved case to set the benchmark for future dual-listing reviews. "In the past, dual listings were relatively unrestricted, then the policy shifted to a blanket prohibition, and now it has moved again to a structure that allows exceptions," one IPO industry official said. "The Korea Exchange has yet to accumulate clear review criteria for judging the adequacy of shareholder-protection efforts, which could make outcomes harder for companies to predict."