[Inside Chodong] Value-Up: Restoring Trust Is the First Step

Seojin System Withdraws Spin-Off Decision After Five Days
HLB, Second in Market Capitalization, Hits Consecutive Lower Limits After New Drug Approval Fails
Time to Enhance Trust Through System Improvements

The government is promoting value-up policies to resolve the undervaluation of the domestic stock market (Korea Discount). To encourage active participation from overseas investors, Financial Supervisory Service Governor Lee Bok-hyun and Korea Exchange Chairman Jung Eun-bo are currently visiting the United States. To eliminate undervaluation, it is essential not only to strengthen shareholder returns such as dividends and share buybacks by listed companies but also to enhance trust. Recently, issues that have undermined trust have occurred consecutively in the KOSDAQ market.

Seojin System, with a market capitalization of 1.4 trillion KRW, recently withdrew its decision to spin off the Energy Storage System (ESS) business division. Earlier, on the 8th, Seojin System held a board meeting and resolved to spin off the ESS business division to establish a new company. It explained that this decision was made to improve decision-making efficiency in each business division and secure growth potential. Additionally, it expected to change the governance structure and separate mixed businesses to receive appropriate corporate valuations for each business division.

Seojin System halted the spin-off process just five days after resolving the spin-off agenda. The Yeouido securities market views the withdrawal reason as the burden of the substantial review of listing eligibility. According to the KOSDAQ market listing regulations, the Korea Exchange decided to suspend trading until it determines whether the parent company fails to meet certain criteria during the spin-off and whether it is subject to the substantial review of listing eligibility. It took the Exchange about five hours to make this judgment.

Listed companies facing major decisions such as a spin-off undergo various review processes. The more an issue can affect governance, the more cautious they must be. If the board of directors resolved an issue without reviewing matters that the Exchange could have confirmed on the same day, the problem is serious.

HLB’s stock price, which had risen to second place in market capitalization in the KOSDAQ market, was halved in two days. News that the U.S. Food and Drug Administration (FDA) delayed approval of a new drug led to two consecutive trading days of hitting the lower limit price. On the day the news broke on the 17th, not only HLB but also seven affiliated companies’ stock prices simultaneously plummeted to the lower limit. Jin Yang-gon, Chairman of the HLB Group, personally explained the progress, stating that they received a Complete Response Letter (CRL) from the FDA regarding the anticancer drug ‘Rivoceranib.’ The post-response was quick and transparent, but the outcome was disappointing.

Domestic securities firms have not published analysis reports on HLB this year. Analysts in charge of pharmaceuticals and biotechnology diligently analyzed smaller market capitalization companies such as Alteogen, Rigachem Bio, and ST Pharm. Although interest in HLB grew as its stock price rose, there were no expert opinions available to refer to for investment. Relying on materials provided by the company led to a lack of caution regarding the failure of approval.

The Seojin System and HLB incidents clearly revealed chronic problems in the domestic stock market. If limited to the capabilities of individual listed companies, similar problems will inevitably continue to occur. If stock managers and IR officers of listed companies do not understand regulations, supervisory authorities must actively step in to provide education. While maintaining confidentiality, channels for practical inquiries should be strengthened. Conditions for analyzing listed companies attracting investor attention must also be created. Passive funds based on indices find it difficult to flow into a stock market with high volatility in top market capitalization stocks. Although value-up is being advocated, detailed support is necessary to increase trust in the domestic stock market. If regulations are tightened or responsibilities shifted every time problems arise, value-up will remain a distant goal.