[why&next]LS Withdraws Essex Listing... Will Duplicate Listings, the 'KOSPI 5000 Obstacle,' Disappear?

Duplicate Listing Controversy Resurfaces... Even the President Weighs In
LS at the Center of the Debate, Finally Announces "Withdrawal of Essex Listing Application"
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 5000 era has arrived, the chronic issue of dual listings-long a key driver of the so-called "Korea Discount" (the undervaluation of Korean stocks)-remains unresolved. When President Lee Jaemyung directly called out the companies involved, their actions, which run counter to the government's push to boost the stock market and protect shareholder rights, drew rare and pointed warnings. Only then did the companies in question announce their withdrawal. This has lent greater weight to calls for closing regulatory loopholes that have effectively allowed dual listings to persist and for strengthening shareholder protections.

According to the financial investment industry on January 26, the decision by LS to withdraw its listing application for Essex Solutions, which is currently under preliminary review by the Korea Exchange, was heavily influenced by President Lee's remarks. On January 22, during a luncheon with the Democratic Party's KOSPI 5000 Special Committee, President Lee directly addressed the issue, stating, "Dual listings are a chronic and widespread problem, and we cannot leave things as they are." After amendments to the Commercial Act last year, the controversy over dual listings had seemed to subside, but the Essex Solutions case reignited the debate and ultimately led LS to withdraw its application.

From LG Energy Solution to Essex... The Unending Controversy

The dual listing debate in Korea's stock market came to the forefront in 2022 with the listing of LG Energy Solution. At that time, LG Chem spun off its core battery business and listed it separately, causing significant losses for existing shareholders and sparking criticism that only controlling shareholders benefited. An industry insider commented, "LG Chem's growth narrative faded once the battery business was separated. This was the first time investors truly experienced the harsh reality of spin-offs and dual listings in their account balances." Investors began to recognize dual listings as a structural issue that could erode shareholder value by splitting the worth of parent and subsidiary companies.

Moreover, LS, which is currently at the center of the controversy, had already drawn the ire of retail investors last year when LS Group Chairman Koo Ja-eun stated, "If you think dual listings are a problem, just don't buy the stock after it goes public." Although Essex Solutions is not a direct subsidiary but a second-tier subsidiary of LS, there were significant concerns that its listing could dilute the value of LS shareholders. The LS Minority Shareholders Alliance and shareholder activism platform ACT had even submitted a petition to the Korea Exchange requesting the rejection of Essex Solutions' preliminary listing review.

With LS withdrawing its listing application, there is now a greater likelihood that other major conglomerate subsidiaries-such as HD Hyundai Robotics, Hanwha Energy, DN Solutions, and SK Ecoplant-will also abandon their dual listing plans. Like Essex Solutions, many of these companies have already raised funds from financial investors at the pre-IPO stage and are likely to seek alternative exit strategies for these investors. The controversy surrounding Essex Solutions has been seen as a test case for how new standards under the amended Commercial Act will be applied to future dual listing attempts.

Kim Woojin, a professor at Seoul National University's Business School, commented, "In the United States, when a parent company is publicly traded, any spin-off or subsidiary is considered the property of the parent company's shareholders. In Korea, however, companies proceed with spin-offs and listings without such an understanding, and dual listings have a serious impact on parent company shareholders."

Clashing with Market Support and Shareholder Protection... What About Regulatory Reform?

The dual listing controversy runs directly counter to the Lee Jaemyung administration's stated goals of boosting the stock market and protecting shareholder rights. There are concerns that the issue could undermine policy momentum and even dampen the KOSPI 5000 rally. Unlike overseas markets, where dual listings are rare, Korea's dual listing ratio is unusually high at 18%. In the United States, where the ratio is just 0.05%, dual listings are rare due to concerns about harming minority shareholder rights. Japan, with a 4% ratio, also faced past controversies over dual listings but has largely resolved the issue through long-term capital market reforms.

As a result, there are growing calls for Korea to address the dual listing problem-identified as a key factor in the Korea Discount-by having the exchange or financial authorities codify more specific guidelines reflecting the amended Commercial Act and by strengthening protections for minority shareholders. The Korea Exchange is expected to soon release guidelines clarifying the definition and criteria for dual listings.

Lee Namwoo, Chairman of the Korea Corporate Governance Forum, said, "It's time to begin policy discussions to ensure that only one of either the holding company or the subsidiary remains listed, in order to uphold the principles and trust of the capital market. Details related to capital market law reform are all interconnected with dual listings and public tenders. The exchange needs to present its own proposal in line with the Ministry of Justice's plan, reflecting amendments to the Commercial Act." He also noted that when Sony listed its subsidiary Sony Financial last year, it allocated more than 80% of the shares to parent company shareholders. "This is common practice overseas, but in Korea, it is treated as a dividend and results in excessive taxation. Tax reform must accompany these changes," he added.

However, there are also concerns that even with new guidelines from the exchange, questions about their effectiveness will persist. Chun Junbeom, Managing Partner at Wise Forest, commented, "The guidelines need to include substantive content, but issues such as 'harm to parent company shareholders and compensation' are beyond the exchange's ability to judge. Ultimately, it comes down to persuading shareholders." He emphasized, "Rather than a simplistic debate over whether something is a dual listing, we need to look at the specific numbers-what benefits exist in each case, how those benefits are distributed to existing shareholders, and what compensation is provided to those who are harmed."

Lee Sangmok, CEO of ACT, argued, "The exchange's guidelines could be interpreted as allowing dual listings if certain conditions are met. Instead of permitting or blocking dual listings based on conditions, we need to take a strong stance to completely prevent them if we want to set the Korean stock market right."