Lee calls for easier, more frequent M&As to normalize market
President Lee Jae Myung speaks during a policy meeting on the capital market at the Korea Exchange in Seoul, Friday. He wore a red tie, a color associated with rising share prices in Korea. Yonhap
President says capital market reform 'not in doubt' amid stock slide
President Lee Jae Myung on Friday highlighted hostile takeovers as a key mechanism to correct what he described as distorted corporate governance and address the undervaluation of Korean stocks, calling for measures to make mergers and acquisitions (M&A) easier and more frequent.
Lee also urged a shake-up of the Kosdaq market, calling for delisting rules to be rigorously applied so that troubled or poorly performing companies exit promptly.
His remarks came during a policy meeting on the capital market at the Korea Exchange (KRX). Acknowledging that the recent stock slide had tested his administration’s resolve and policies, Lee said its commitment to normalizing the capital market remained beyond doubt.
"Markets can be normalized only when M&A deals are made easier and more widespread. Hostile M&A is the most important mechanism for normalizing the market," Lee said.
Calling for more concrete measures to encourage such deals, Lee said a more active M&A market would help resolve the problem of Korean companies trading at unusually low valuations and expand the overall value of the stock market.
Behind Lee’s remarks was concern that Korea’s stock undervaluation reflects more than weak earnings or growth prospects. He questioned whether some controlling shareholders deliberately keep share prices low to reduce inheritance taxes. He also pointed to distrust arising from abuses of management control and disregard for minority shareholders.
By encouraging hostile takeovers, which involve attempts to gain control without the consent of existing management, Lee sought to make those controlling shareholders more vulnerable to challenges from outside investors. Such bids allow investors to pursue control without management’s approval, putting pressure on existing owners to improve governance and shareholder value.
The policy meeting came as sharp corrections in both KOSPI and Kosdaq, following record highs earlier this year, heightened concerns over financial market stability.
The benchmark KOSPI surpassed 9,000 for the first time on June 18, closing at 9,063.84, but has since retreated to the 5,000 range. The Kosdaq reached a record high of 1,226.18 on April 27, breaking above 1,200 for the first time, before falling back to around 700.
Amid the market turbulence, the government is seeking to boost stock valuations and overhaul the secondary Kosdaq market to address structural weaknesses in Korea’s capital market.
On his second visit to the KRX as president, Lee wore a red tie, apparently signaling hopes for a market rebound through a color associated with stock gains in Korea.
"Capital market reform is once again being put to the test, but our government's commitment to normalizing the capital market is not in doubt," Lee said.
He was joined by senior government officials, lawmakers, industry representatives and market experts for discussions on addressing the undervaluation of Korean stocks.
President Lee Jae Myung speaks during a policy meeting on the capital market at the Korea Exchange in Seoul, Friday. Yonhap
Lee particularly stressed that Kosdaq must become a more reliable market where innovative companies can grow and investors can invest with confidence.
"Many people are also concerned about the Kosdaq market. We need to reform the market and build a stable investor base," Lee said. "We must comprehensively review the systems governing market entry, exit and valuation to turn Kosdaq into a market where innovative companies can grow and investors can invest with confidence."
The government has already begun tightening delisting rules to improve the quality of listed companies and restore investor confidence.
The measures include raising minimum market capitalization requirements for maintaining a listing and introducing stricter delisting criteria for stocks trading below 1,000 won.
Lee also urged listed companies to improve communication with investors, criticizing those that neglect investor relations (IR) and questioning whether they “deserved to remain listed.”
He pointed to a lack of English-language materials, calling for better communication with foreign shareholders.
"Foreign investors say they want to invest in Korean stocks but cannot find materials in English," Lee said. "What is so difficult about preparing materials in English or other major foreign languages and posting them online?"
In response, KRX Chairman Jeong Eun-bo said the exchange was considering revising its requirements for listed firms to oblige them to hold at least one IR event a year. Requirements on English-language disclosure, which is already mandatory for KOSPI-listed companies, would soon be extended to Kosdaq-listed firms, he said.
To coordinate the broader reform effort, Lee proposed setting up a high-level task force to address the issues raised at Friday’s meeting.
"There seems to be too much reform work that needs to be done specifically for the KRX and the broader capital market. I would like to see a high-level body established to take charge of these issues," he said.
Lee suggested that the body could bring together lawmakers from both the ruling and opposition parties, as well as private exchanges and investment associations. He also called for surveys and consultations to identify areas requiring legislative or institutional changes.