[Inside Chodong] "If Dual Listing Is a Problem, Just Don't Buy the Stock?"

In a single day, the market capitalization of a group of affiliates in the domestic stock market evaporated by more than 650 billion KRW. The spark was a remark by Koo Ja-eun, chairman of LS Group, who said, "If you think dual listing is a problem, then simply don't buy the stock after it is listed." The group head dismissed the chronic issue of dual listing, considered a major factor in the Korea discount, as an inevitable and easy means of raising funds for "small companies to continue growing."

The disappointment among retail investors remains evident even days later. Since LS Group has even selected an underwriter for the subsidiary's listing, investors do not seem to regard the comment as a mere slip of the tongue. On the day following the statement, the 6th, the stock prices of nine LS Group affiliates plunged simultaneously. LS ELECTRIC, expected to be listed as a subsidiary, dropped by double digits at that time and has been on a downward trend for four consecutive trading days.

Why, as Chairman Koo said, has dual listing "not been a problem in the past but has become controversial recently"? It is because investors' concerns that shareholder interests could be harmed have grown significantly. A representative example is when LG Chem spun off its battery business and listed LG Energy Solution, causing substantial losses for existing LG Chem shareholders. When Kakao consecutively listed Kakao Pay and Kakao Bank, their stock prices also fell together. These are cases where the value of the parent and subsidiary companies was dispersed, realizing the so-called 'dual listing trap.'

Of course, there have been cases where stock prices did not fall after a subsidiary's listing. However, unlike companies that profit from an increase in equity value, small shareholders are inevitably at a disadvantage. Dual-listed companies often face conflicting interests between parent and subsidiary in deciding dividend policies. In this process, minority shareholders of the subsidiary may suffer losses.

The fact that the domestic market has an unusually high dual listing ratio (18.43%) is also a background to the controversy. Dual listing itself is rare overseas, with rates of 0.35% in the U.S., 4.38% in Japan, and 1.98% in China. This context is why foreign investors view dual listing as a factor contributing to the Korea discount.

Especially in the U.S., known as the 'land of lawsuits,' dual listing cases are rare due to concerns about infringing on minority shareholders' rights. Typically, companies spin off and then list the subsidiary, with the parent company distributing subsidiary shares to existing shareholders, allowing the subsidiary to operate independently. A representative example is eBay and PayPal. Sometimes the parent company retains a certain stake but generally does not exercise control.

Moreover, the U.S. Securities and Exchange Commission (SEC) strictly manages issues of insider trading and conflicts of interest when both parent and subsidiary are listed. For parent companies seeking to maintain control after a subsidiary's listing, the SEC demands strong investor protection measures, citing concerns over corporate governance opacity. This sharply contrasts with the Korean financial authorities, who faced criticism for ineffectiveness despite imposing sanctions during past dual listing controversies.

The recent controversy surrounding the dual listing remarks seems to clearly reveal the very low level of shareholder protection in Korea. Of course, for LS Group, which plans to list an acquired company rather than splitting existing businesses, it may feel somewhat unfair to be lumped together with previous dual listing cases. However, how retail investors should interpret the chairman's remarks that "it was not a problem before" or "just don't buy the stock after listing" is another matter?especially at a time when the National Assembly is actively discussing amendments to the Commercial Act and Capital Markets Act to protect shareholders.

It cannot be denied that dual listing can be a means for corporate growth. But how long can a company continue to 'grow' while shaking shareholder trust? Many companies are scheduled for dual listings this year as well. The lesson left by Chairman Koo's remarks is clear: legal reforms to protect shareholders can no longer be postponed.