Democratic Party's K-capital market committee to hold marathon debate with Finance Ministry on Monday over 'share-price suppression' bill

The Democratic Party of Korea's Korea Premium K-Capital Market Special Committee, chaired by lawmaker Oh Ki-hyung, announced Friday it will hold a marathon debate session to finalize legislation aimed at preventing the artificial suppression of share prices.

According to the committee, a public forum titled "Public Debate on Amendments to the Inheritance and Gift Tax Act to Prevent Share-Price Suppression" will be held Monday at 4 p.m. in Conference Room 6 of the National Assembly members' office building.

The forum will compare and review a bill proposed by Democratic Party lawmaker Lee Hoon-ki, a separate bill by lawmaker Lee So-young, and a revised proposal from the Ministry of Economy and Finance, with the aim of gathering opinions on outstanding issues and producing a final legislative draft.

The share-price suppression prevention bill is an amendment to the Inheritance and Gift Tax Act designed to eliminate incentives for controlling shareholders to artificially keep share prices low in order to reduce their inheritance and gift tax burdens, and to ensure that a company's intrinsic value is fairly reflected in the market. The legislation is part of a broader capital market reform effort to address structural causes of the Korea Discount and protect the rights of some 14 million retail investors.

With domestic stock markets having swung sharply in recent months, investor attention has turned back to the need for structural improvements in the Korean market. Even during periods when indexes surged, the number of companies trading below their net asset value did not shrink — and in the current downturn, that undervaluation has deepened, critics say. Against that backdrop, the share-price suppression prevention bill has become the legislation most closely watched by retail investors. A public petition demanding an effective version of the bill drew more than 50,000 signatures within a week.

The Democratic Party intends to pass the bill during the current regular session of the National Assembly, cutting off controlling shareholders' incentives to suppress share prices and establishing a fair capital market order in which the benefits of improved corporate value flow to ordinary shareholders as well.

The Ministry of Economy and Finance is expected to present a revised version of the government proposal it announced Aug. 3 and to participate in the debate on that basis.

At the forum, lawmaker Lee Hoon-ki will identify the shortcomings and limitations of the ministry's revised proposal and present a new alternative that preserves the original intent of preventing share-price suppression.

The government proposal the ministry released earlier drew criticism for relying on a relative-evaluation method that screens companies by sector based on price-to-book ratios. Critics said the approach was fundamentally incapable of blocking share-price suppression and amounted in effect to a bill that simply tolerates the practice.

Lee Hoon-ki's bill, by contrast, sets 80 percent of the net asset value under tax law as a floor for valuation, and includes provisions for exceptions for companies in financial difficulty, the abolition of the premium applied to the largest shareholders' stakes, and permission to pay inheritance taxes in kind using listed shares.

Oh Ki-hyung, the committee chairman, will moderate the forum. Lee Hyo-seop, a senior research fellow at the Korea Capital Market Institute, will present on behalf of the Ministry of Economy and Finance; Yi Dae-ho, a reporter at Y Street, will present on behalf of the Lee So-young bill; and lawmaker Lee Hoon-ki will present his own bill in person.

Discussants will include attorney Kim Tae-hee of law firm Pyeongsan and Yonsei University professor Lee Joong-kyo on the ministry's side; attorney Shim Hye-seop of Shim Hye-seop Law Office and director Kim Ji-yeol of Quad Asset Management on the Lee So-young bill's side; and attorney Oh Choong-jin of law firm Eo Partners and CEO Na Min-chae of The Value & Co. on the Lee Hoon-ki bill's side.

The K-Capital Market Special Committee plans to consolidate the key issues from the debate by mid-November and finalize a draft bill by the end of the month. The bill will then go through review by the National Assembly's standing committee on finance and economy before the committee pushes for a full plenary vote in December.

"What the public wants right now is a law that can actually stop share-price suppression," Lee Hoon-ki said. "But the ministry's revised proposal is still no more than a bill that tolerates the practice — it does nothing to properly prevent it."

"At this marathon debate, we will lay bare every flaw and limitation in the ministry's original and revised proposals, and we will absolutely produce a final draft that can effectively block share-price suppression," Lee added. "We will do everything in our power to wrap up the legislative discussions by the end of November and ensure the share-price suppression prevention bill passes the National Assembly plenary session in December."