Governance Forum, "No Protection Measures for Common Shareholders in HD Marine's Listing"

Chairman Lee Nam-woo: "Authorities Must Carefully Review Measures to Protect Common Shareholders"

Namwoo Lee, Chairman of the Korea Corporate Governance Forum, is revealing a letter addressed to the Financial Services Commission Chairman and the new Korea Exchange Chairman at the 'Korea Corporate Governance Forum New Year Press Conference' held on the 5th at Two IFC, Yeouido, Seoul. Photo by Jinhyung Kang aymsdream@

Criticism has been raised that the protection measures for common shareholders were lacking in the listing process of HD Hyundai Marine Solutions (HD Marine).

On the 19th, according to the Korea Corporate Governance Forum, the forum stated in a commentary the day before, "We want to ask HD Hyundai controlling shareholder Chung Mong-joon and the board of directors about the ongoing vicious cycle of simultaneous parent-subsidiary listings," adding, "In this listing of HD Marine, the majority shareholders holding more than 60% of the parent company HD Hyundai, including the National Pension Service which holds more than 10% stake, and the common shareholders of HD Hyundai are not at all discussing what benefits they are receiving from the subsidiary HD Marine, which is valued at over 3 trillion won, or whether HD Marine’s listing might actually cause losses."

Lee Nam-woo, chairman of the Korea Corporate Governance Forum, said, "Comparing the market capitalization of the parent company HD Hyundai and the expected corporate value of HD Marine to be listed, it is a significantly large business sector newly going public from the perspective of the parent company’s common shareholders," adding, "It feels like a d?j? vu of LG Chem and LG Energy Solution, which became a major issue due to a physical spin-off in 2020."

At that time, there were numerous discussions during LG Energy Solution’s re-listing process after the physical spin-off, and the authorities introduced strong measures in September 2022. The Financial Services Commission strengthened listing examinations for companies re-listing after physical spin-offs, and the Korea Exchange prepared protection measures for the parent company’s common shareholders, such as stock dividends in kind of subsidiary shares or providing exchange opportunities.

Chairman Lee said, "Unfortunately, regarding the protection of the parent company’s common shareholders, there is a condition that it applies only to subsidiaries listed within five years after a physical spin-off, so it seems that this does not apply to the current HD Marine listing. The listing being pursued this year is the seventh year after the physical spin-off," explaining, "Then, is there no need to protect the parent company’s common shareholders if the listing occurs more than five years after the physical spin-off?"

He analyzed, "The common shareholders of the parent company HD Hyundai probably thought that the value of HD Marine was included in HD Hyundai until 2021, when the company sold its 100% stake in HD Marine to KKR," adding, "However, with the stake sale in 2021, the possibility of listing suddenly emerged, and from then on, they were fully exposed to the so-called 'parent company discount'." In fact, HD Hyundai’s stock price significantly declined compared to the KOSPI index after June 2021, the time of the sale.

Chairman Lee said, "If the company’s board of directors has general duties such as fiduciary duty to protect common shareholders, there would be much less need to create or review detailed criteria like 'within five years after a physical spin-off,'" adding, "When events like listings occur, thorough discussions and meticulous measures are needed regarding how much damage common shareholders suffer and what appropriate compensation levels and methods should be." He then suggested, "If all investors contributing to the capital raising of listed companies are not protected, it will be difficult for the virtuous cycle of the capital market and the growth of the Korean economy."