A Step Toward Resolving the 'Korea Discount'... "Shareholder Value Damage Will Decrease"

Revision of Dividend System and Physical Division Regulations
Announcement of Abolition of Foreign Investor Registration System

[Image source=Yonhap News]

[Asia Economy Reporter Lee Myunghwan] As financial authorities announced plans to reform dividend systems and regulations on physical division to resolve the "Korea Discount" (domestic stock market undervaluation), securities experts have diagnosed that these policies will help enhance shareholder value.

On the 6th, KB Securities researcher Hainhwan said, "If the shareholders' meeting is held first, shareholders are more likely to demand higher dividend payments," adding, "Since the dividend amount is confirmed first, uncertainty can be resolved."

Earlier, on the 28th of last month, the Financial Services Commission held the "Korea Discount Relay Seminar" and announced a draft for capital market advancement, including reforms to the dividend system and the abolition of the foreign investor registration system. Related institutions plan to improve the system so that the dividend amount is decided first, allowing investors to decide whether to invest accordingly.

The current system applies a method where listed companies confirm shareholders eligible for dividends at the end of December each year, then decide the dividend amount at the shareholders' meeting in March of the following year, and pay it in April. Since shareholders are confirmed first, investors have no choice but to accept the dividend decision announced months later without knowing the dividend amount in advance. If the dividend amount is decided first, it is viewed by the securities industry as increasing the predictability of dividend investment, which can be advantageous for investors.

Policies to protect shareholder rights related to physical division of listed companies will also be introduced. In September, the Financial Services Commission and the Financial Supervisory Service announced the "Measures to Enhance General Shareholders' Rights Regarding the Listing of Physical Division Subsidiaries," signaling improvements such as the introduction of a stock purchase right. Shareholders of listed companies opposing a physical division will be granted the right to request the company to purchase their shares.

The disclosure responsibilities of companies attempting physical division will also be strengthened. This is in response to criticisms that the current measures to protect general shareholders' rights during physical division of listed companies are insufficient. It is analyzed that granting the stock purchase right can have an effect of protecting shareholder rights. Yuanta Securities researcher Choi Namgon analyzed, "It is possible to avoid stock price declines that may occur after the announcement of physical division, and it has the effect of suppressing the decision to physically divide through financial burdens on the company."

In addition, authorities plan to continue policy reforms to resolve the Korea Discount, including the introduction of English-language disclosures and the abolition of the foreign investor registration system. Researcher Choi evaluated, "If related regulations are revised under the leadership of the government and the National Assembly, it is expected that cases of shareholder value damage will decrease."