[why&next]LS Withdraws Essex Listing...Will Duplicate Listings 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 begun, the persistent issue of "Korea Discount"-the chronic undervaluation of the Korean stock market-continues to be fueled by the controversy over duplicate listings. When President Lee Jaemyung directly mentioned the company in question, despite the government's efforts to boost the stock market and protect shareholder rights, the company, feeling the pressure from this rare warning, finally announced its decision to withdraw. This has added weight to calls for addressing the institutional void that has effectively allowed duplicate listings to persist, and for strengthening shareholder protection.

According to the financial investment industry on January 26, President Lee’s remarks had a significant impact on the decision by LS to withdraw the listing application for Essex Solutions, which is currently under preliminary review by the Korea Exchange. Previously, on January 22, President Lee directly addressed the issue during a luncheon with the Democratic Party’s KOSPI 5000 Special Committee, stating, "Duplicate listings are a chronic and widespread problem, and we cannot leave things as they are." After the amendment to the Commercial Act last year, the controversy over duplicate listings seemed to subside for a while, but the Essex Solutions case brought it back into the spotlight, ultimately leading LS to withdraw its listing application.

From LG Energy Solution to Essex: Unending Controversy

The controversy over duplicate listings in the domestic stock market first came to the fore in 2022 with the listing of LG Energy Solution. At that time, LG Chem spun off its core growth engine, the battery business, and listed it separately, resulting in significant losses for existing shareholders and sparking criticism that only controlling shareholders benefited. An industry insider commented, "For LG Chem, separating the battery business meant losing its growth narrative. This was the first time the harsh reality of spin-offs and duplicate listings was felt in terms of numbers and account balances." Investors began to recognize duplicate listings as a structural issue that could dilute the value of both parent and subsidiary companies, thereby harming shareholder interests.

Moreover, LS, which has recently been at the center of the controversy, had already drawn strong criticism from retail investors last year when LS Group Chairman Koo Ja-eun said, "If you think duplicate listings are a problem, simply don’t buy the stock after it’s listed." Although Essex Solutions is not a direct subsidiary but a second-tier subsidiary of holding company LS, there were significant concerns that listing the company could dilute the value of LS shareholders. The LS Minority Shareholders’ Alliance and shareholder activism platform ACT had also submitted a petition to the Korea Exchange requesting that Essex Solutions’ preliminary listing review be rejected.

With LS withdrawing its listing application, it is now increasingly likely that duplicate listings of major conglomerate subsidiaries such as HD Hyundai Robotics, DN Solutions, and SK Ecoplant will also be halted. Since many of these companies, like Essex Solutions, have already raised funds from financial investors (FIs) at the pre-IPO stage, they are expected to seek alternative exit strategies for these investors. The controversy surrounding Essex Solutions has been seen as a test case for what standards will apply to attempts at duplicate listings in the era of the revised Commercial Act.

Kim Woojin, a professor at Seoul National University Business School, criticized, "In the United States, when a parent company is listed, whether a business unit is spun off or a subsidiary is created, there is a strong perception that all of it belongs to the parent company’s shareholders. In Korea, however, spin-offs and listings are pursued without such a perception, and duplicate listings have a severe impact on parent company shareholders."

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

The duplicate listing controversy is also in direct conflict with the Lee Jaemyung administration’s policy stance of boosting the stock market and protecting shareholder rights. There are concerns that it could undermine policy momentum and even dampen the KOSPI 5000 rally. Unlike overseas markets where duplicate listings are rare, the proportion of duplicate listings in Korea is unusually high at 18%. In the United States, where the rate is just 0.05%, duplicate listings are rare due to concerns over harm to minority shareholder rights. Japan (4%) also experienced controversy over duplicate listings in the past, but has largely resolved the issue through long-term efforts to upgrade its capital market.

Accordingly, there are growing calls for Korea to address the duplicate listing issue-one of the main causes of the chronic Korea Discount-by having the Korea Exchange or financial authorities codify more specific guidelines that reflect the revised Commercial Act, and by strengthening protections for minority shareholders. The Korea Exchange is expected to soon release guidelines that clarify the concept and criteria for determining duplicate listings.

Lee Namwoo, Chairman of the Korea Corporate Governance Forum, stated, "It’s time to begin policy discussions to ensure that, whether it’s a holding company or a subsidiary, only one remains, for the sake of the principles and trust of the capital market. Details related to improvements in the Capital Markets Act are closely linked with issues such as duplicate listings and tender offers. The Korea Exchange should present its own proposal in line with the Ministry of Justice’s, reflecting amendments to the Commercial Act." He also noted that when Sony listed its subsidiary Sony Financial last year, it distributed more than 80% of the shares to parent company shareholders, saying, "This is common practice overseas, but in Korea, it is treated as a dividend, resulting in excessive taxation. Tax reform must be carried out in tandem."

However, some point out that even if the Korea Exchange issues guidelines, questions remain about their effectiveness. Chun Joonbum, Managing Partner at Wise Forest, commented, "The guidelines need to contain substantive content, but the Korea Exchange is not in a position to judge issues like 'harm or compensation to parent company shareholders.' Ultimately, it’s a matter of persuading shareholders." He emphasized, "Rather than a simplistic debate over whether something is a duplicate listing, we need to look at the specific numbers: how much profit is involved in each case, how that profit is distributed to existing shareholders, and what compensation is available for shareholders who are harmed."

Lee Sangmok, CEO of ACT, argued, "Depending on the conditions, the Korea Exchange guidelines could be interpreted as allowing duplicate listings if certain requirements are met. Instead of conditionally permitting or blocking them, Korea’s stock market can only be set right by taking a strong stance to fundamentally prohibit duplicate listings."