[why&next]Will Dual Listings, the 'KOSPI 5000 Obstacle,' Disappear?

Dual Listing Controversy Flares Up Again... President Directly Addresses Issue
LS at the Center of the Debate: "All Options Including Suspension Under Review"
Korea Exchange Begins Drafting Guidelines... Effectiveness Must Be Improved

"Aren't you supposed to avoid buying stocks with an 'L' in their name?"

Even as the KOSPI enters the 5,000 era, the chronic issue of duplicate listings-long a key factor in the so-called "Korea Discount"-remains unresolved. This practice, which runs counter to the government's stock market stimulus and shareholder protection policies symbolized by the recent revision of the Commercial Act, has drawn direct criticism from President Lee Jaemyung, who mentioned specific companies by name. With the president issuing an unusually strong warning, calls are growing to address the institutional void that has allowed the problem of duplicate listings to persist unchecked.

According to the financial investment industry on January 26, LS is reportedly considering suspending the initial public offering (IPO) of its second-tier subsidiary, Essex Solutions, as controversy grows both inside and outside the company. Previously, President Lee directly addressed the issue during a luncheon with the Democratic Party's KOSPI 5000 Special Committee on January 22, stating, "Duplicate listings are a chronic and widespread problem, and we cannot leave them unaddressed." After last year's revision of the Commercial Act, the duplicate listing debate seemed to subside for a while, but the Essex Solutions case has brought the issue back to the forefront, prompting LS to reconsider its plans.

From LG Energy Solution to Essex... Unending Controversy

The issue of duplicate listings in the Korean stock market first became a major public debate with the 2022 listing of LG Energy Solution. At that time, LG Chem spun off its core battery business and listed it separately, resulting in significant losses for existing shareholders and sparking criticism that "only controlling shareholders benefit." An industry insider commented, "LG Chem faced a situation where its growth narrative would fade without the battery division. This was likely the first time investors experienced the harsh reality of spin-offs and duplicate listings in concrete terms, such as numbers and account balances." For investors, duplicate listings began to be seen as a structural problem that could dilute the value of both the parent and subsidiary, undermining shareholder interests.

Moreover, LS, which is at the center of the current controversy, had already drawn strong criticism from retail investors last year when LS Group Chairman Koo Ja-eun remarked, "If you think duplicate listings are a problem, just don't buy the stock after it goes public." Although Essex Solutions is a second-tier subsidiary rather than a direct subsidiary of the holding company LS, there were significant concerns that listing it could dilute the value of LS holding company shareholders. The LS Minority Shareholders Alliance and shareholder activism platform ACT had already submitted a petition demanding that the Korea Exchange reject Essex Solutions' preliminary listing review, ahead of the notification deadline next month.

Until recently, LS had planned to proceed with the listing as scheduled, but on the previous day, the company announced, "We are reviewing all options, including suspending the listing." This suggests that President Lee's public comments have put pressure on the company. There is now a high likelihood that duplicate listings by other large conglomerate subsidiaries-such as HD Hyundai Robotics, Hanwha Energy, DN Solutions, and SK Ecoplant-will also fall through. Since many of these companies secured funding from financial investors (FIs) at the pre-IPO stage, they are expected to seek alternative exit strategies for these investors.

Kim Woojin, professor at Seoul National University Business School, commented, "In the United States, when a parent company is listed, whether it spins off a business unit or a subsidiary, there is a strong perception that all value belongs to the parent company's shareholders. Here, however, companies push ahead with spin-offs and listings without that understanding," adding, "Duplicate listings can seriously impact parent company shareholders and should be reconsidered."

Clashing with Stock Market Stimulus and Shareholder Protection... What Are the Solutions?

The controversy over duplicate listings also runs directly counter to the Lee Jaemyung administration's focus on stock market stimulus and shareholder rights protection. This has raised concerns that the KOSPI 5000 rally itself could be undermined. The outcome of the Essex Solutions case is seen as a symbolic test of what standards will be applied to future attempts at duplicate listings in the era of the revised Commercial Act.

Unlike overseas markets, where duplicate listings are rare, the rate of duplicate listings in Korea is exceptionally high at 18%. In the United States (0.05%), such cases are rare due to concerns about infringing on minority shareholder rights. Japan (4%) also experienced past controversies over duplicate listings but has largely resolved the issue through long-term capital market value-up initiatives.

As a result, there are growing calls for Korea to address duplicate listings-one of the chronic causes of the Korea Discount-by having the Korea Exchange or financial authorities codify more specific guidelines reflecting the revised Commercial Act and by strengthening protections for minority shareholders. The Korea Exchange is expected to soon release guidelines that clarify the definition and criteria for duplicate listings.

Lee Namwoo, chairman of the Korea Corporate Governance Forum, stated, "For the principles and trust of the capital market, it is time to begin policy discussions about allowing only one listing, whether for a holding company or a subsidiary." He added, "Details related to capital market law reforms are closely linked to issues such as duplicate listings and public tender offers. The Korea Exchange should propose its own measures in line with the Ministry of Justice's plans, reflecting the revised Commercial Act." He also cited the example of Sony, which, when listing its subsidiary Sony Financial last year, distributed over 80% of the shares to parent company shareholders, saying, "This is standard practice overseas, but in Korea, it is treated as a dividend and heavily taxed. Tax reform must accompany these changes."

However, some point out that even if guidelines are established, their effectiveness may be limited. Chun Junbeom, managing attorney at Wise Forest, said, "The guidelines must contain substantive content, but the Korea Exchange cannot determine issues such as 'harm or compensation to parent company shareholders.' Ultimately, it is a matter of persuading shareholders." He emphasized, "Rather than a simplistic debate over whether something is a duplicate listing or not, we need to look at the specific numbers: how much benefit there is in each case, how those benefits are distributed to existing shareholders, and what compensation is provided to shareholders who are harmed."

Lee Sangmok, CEO of ACT, argued, "In some ways, the Korea Exchange's guidelines could be interpreted as allowing duplicate listings if certain conditions are met. Rather than conditionally allowing or blocking them, we need to take a strong stance to fundamentally ban duplicate listings in order to restore the integrity of the Korean stock market."