Governance Forum: "Doosan and LG Must Halt Overseas Subsidiary Listings"

The Korea Corporate Governance Forum pointed out that the pursuit of overseas listings by Doosan and LG's foreign subsidiaries is causing corporate value to flow abroad, exacerbating the Korea discount.

In a commentary on the 23rd, the forum stated, "LG, Doosan, and Hyundai Motor, which represent the domestic business community, have either listed their highly profitable overseas production subsidiaries locally since the fourth quarter of last year or are currently pursuing such listings. This raises a reasonable suspicion that they chose overseas listings to avoid the strict scrutiny from regulatory authorities regarding the controversy over duplicate listings of parent and subsidiary companies, as well as the heightened expectations of investors." It added, "Since corporate value is flowing overseas, from the perspective of domestic parent company shareholders, this is value destruction rather than value enhancement, and the Korea discount is becoming more severe across the entire market."

The forum emphasized, "This phenomenon occurs because companies neglect investor protection and focus solely on controlling shareholder succession issues rather than enhancing corporate value," adding, "The recent continuous weakness in LG Electronics and Hyundai Motor's stock prices confirms the market's concerns."

According to the forum, Japan is working on eliminating subsidiaries. Hitachi, whose stock price has risen 333% over the past five years, had 22 listed subsidiaries but now has none. Only the parent company is listed. The forum explained, "In this process, promising subsidiaries were acquired up to 100% to delist them, or subsidiaries unrelated to the core business were sold off, with the proceeds reinvested in the core business," describing it as "a structure where corporate value is concentrated in a single listed parent company, like Alphabet, Meta, and Tesla."

The forum noted, "In manufacturing, duplicate listings of parent and subsidiary companies cause various conflicts of interest such as transfer pricing," pointing out, "Although consolidated financial results are recorded in accounting and dividends are received, parent company shareholders have limited rights regarding the subsidiary's cash flow and profits. The parent company's audit committee can request reports on the subsidiary's operations and, if necessary, investigate its business and financial status, but the subsidiary can resist, claiming interference. If the headquarters sets excessively high transfer prices, parent company shareholders benefit, but minority shareholders of the subsidiary may suffer."