Financial Services Commission Broadens Recognition of Tender Offerors' Financing Capabilities

Effective from the 1st of next month

On the 27th, the Financial Services Commission announced that it will expand the scope of recognition for tender offer fund holding certificates to revitalize the corporate M&A market.

On the 9th, officials were busy moving in the corridor of the Financial Services Commission at the Government Seoul Office in Jongno-gu, Seoul, where financial authorities decided to promote a plan to include mortgage loans (Judaemdae) in the 'debt refinancing' infrastructure scheduled to be launched in May by the end of the year. Financial authorities explained that they aim to reduce the interest burden on mortgage loans by establishing a debt refinancing platform that allows users to compare financial sector loan interest rates at a glance and switch loans easily. Photo by Dongju Yoon doso7@

To verify the financing capability of tender offerors, financial authorities require tender offerors to attach a "tender offer fund holding certificate" when submitting a tender offer report to the Financial Supervisory Service.

Until now, to prevent settlement default risks when receiving tender offer fund holding certificates, the financial authorities have, in principle, only recognized certificates of deposit or short-term financial products (MMF). This has led to criticism in the market that excessive opportunity costs arise from securing funds in advance during tender offers. In particular, there have been increasing calls to consider the reduced settlement default risk due to the development of acquisition financing and the rising trend in tender offer sizes.

The tender offer system is designed to require the public purchase of stocks, etc., acquired outside the securities market for the purpose of acquiring corporate control, when the holding ratio reaches 5% or more. Until now, general investors have felt pressured to sell their holdings at low prices due to concerns about being placed at a disadvantage in the event of management rights changes, but this burden can be alleviated through tender offers.

To relieve the burdens felt by market participants, the FSC plans to expand the scope of recognition for tender offer fund holding certificates. In addition to cash and short-term financial products, loan commitments (LOC) from financial institutions and capital contribution commitment agreements from LPs (investors entrusting funds to private equity funds such as pension funds and mutual aid associations) will be recognized as proof of fund securing documents. An FSC official stated, “When submitting a loan commitment or capital contribution commitment agreement as a tender offer fund holding certificate to the Financial Supervisory Service, a funding plan from the financial institution or other entity providing the loan commitment or capital contribution commitment agreement must also be attached.”

The FSC expects that this institutional improvement will ease the constraint of securing funds in advance, contributing to the sound development of the corporate M&A market. Furthermore, by supporting the smooth operation of the tender offer system, it is anticipated that the fairness and transparency of corporate control competitions will be enhanced, thereby strongly protecting the rights of general investors.

This institutional improvement plan will be implemented from the 1st of next month by revising the "Corporate Disclosure Practical Guide."