South Korea's revamped dual-listing rules will take effect Monday, following a public comment period after a draft framework was released in early July.
The Financial Services Commission approved amendments to Korea Exchange listing and disclosure regulations at its regular meeting Friday to implement the dual-listing reform.
The final rules are based on a proposal the FSC and Korea Exchange released July 6, which itself followed three public hearings held April 16, May 20 and May 27. A formal advance notice period ran from July 7 to July 14 before the final version was confirmed.
During that period, the corporate sector called for easing the obligations placed on parent company boards and Korea Exchange's screening criteria, while the investment industry argued for stricter requirements.
Two issues were at the center of the debate. The first was the scope of the mandatory shareholder consent requirement.
The original proposal required shareholder consent only for subsidiaries spun off through a physical division, treating other cases as recommendations. Corporate groups asked for an exemption when a significant amount of time had passed since the physical division, while the investment industry pushed to extend the mandatory requirement to all dual listings.
The second issue was the voting method used to determine shareholder consent. The draft adopted the so-called 3 percent rule, which caps the voting rights of any shareholder holding more than 3 percent of shares at 3 percent, with the largest shareholder's stake calculated to include shares held by related parties.
Approval also requires a majority of participating shares and at least one-quarter of all issued shares to vote in favor. The corporate sector called for dropping the 3 percent rule in favor of an ordinary resolution, while the investment industry said a majority-of-minority approach would be more appropriate.
The FSC held firm on both points. It said allowing an ordinary resolution would let controlling shareholders secure consent on their own, undermining the purpose of the rule, while a majority-of-minority mechanism has no domestic precedent. The commission also said limiting the mandatory consent requirement to physical-division subsidiaries reflects a deliberate balance between protecting parent company shareholders and preserving companies' ability to raise capital.
Some feedback was incorporated into the final rules — and notably, one change tightened rather than loosened the requirements.
Under the draft, a special committee formed by the parent company's board to review a dual listing had to meet one of two conditions: either an independent director serving as chair, or independent directors and outside members making up at least two-thirds of the committee. The final rules require both conditions to be met simultaneously.
On the other hand, some disclosure burdens were eased. The requirement that the parent board's final vote on a dual listing disclose each individual director's position was changed to require only the overall vote tally.
Low-weight subsidiaries — those with a small share of the parent's total value — that bypass the shareholder consent process need only briefly disclose their status and relative weight. A requirement to mandate electronic voting during shareholder consent ballots was downgraded to a recommendation. Real estate investment trusts were explicitly excluded from the dual-listing regime.
Once the rules take effect, parent company boards must fulfill five obligations before approving a subsidiary listing: a shareholder impact assessment, development of shareholder protection measures, shareholder communication or a consent vote, a board vote and notification to the subsidiary, and public disclosure.
If a shareholder consent vote is not held, the reason must also be disclosed. The same procedures apply when a subsidiary seeks a listing on an overseas exchange.
Korea Exchange will assess, at the listing review stage, a subsidiary's operational and managerial independence, the parent board's compliance with the five obligations, and whether shareholder protection requirements are met. Shareholder consent is mandatory for subsidiaries created through a physical division; for general subsidiaries, obtaining consent is presumed sufficient, while those that do not obtain it face a stricter individual review. Low-weight subsidiaries are exempt from the consent requirement.
The FSC said it plans to periodically update its dual-listing guidelines based on actual cases of parent board compliance and Korea Exchange reviews after the rules take effect, in order to improve predictability for companies and investors and ensure the regime operates rationally.
jiyun@heraldcorp.com
