More firms may delist due to growing burden from enhanced investor protection rule

A trading board at a dealing room in Hana Bank headquarters in central Seoul shows real-time information on the benchmark KOSPI, secondary bourse Kosdaq and their respective listed stocks, Wednesday. Yonhap

A growing number of publicly traded companies are gearing toward voluntarily delisting their shares on the stock exchange to avoid growing burdens from a revised law aimed at empowering minority shareholders’ rights, according to industry officials on Thursday.

The Commercial Act, which was amended and passed by the liberal Democratic Party of Korea (DPK)-controlled National Assembly on March 13, aims to expand corporate directors’ duty from solely the company to shareholders.

The law received pushback for potentially impeding management's decision-making. On April 1, then-acting President Han Duck-soo vetoed the revision while former President Yoon Suk Yeol's impeachment trial was ongoing.

The revision stipulates rights for minority shareholders during mergers, spinoffs and other corporate transactions, and ensures a fair return for their investment.

Industry officials say that the revised act is expected to further gain ground in the next administration, as Lee Jae-myung, the DPK presidential candidate, is the frontrunner for the June 3 presidential election.

Lee has ardently defended the revised Commercial Act, asking the listed companies to buy back their shares and otherwise remove them from the market.

The DPK candidate hopes to reduce the number of outstanding shares and increase the value of the corresponding stock prices at the cost of the involved companies.

Charts of the benchmark KOSPI and the secondary Kosdaq bourses are seen on an electronic board in a dealing room in this undated file photo. Yonhap

Telcoware, Shinyoung Securities, Ilsung IS and Chokwang Leather from the benchmark KOSPI, as well as InfoVine and MAKUS from the secondary bourse Kosdaq, are reportedly considering delisting their shares, according to industry officials.

“Such a scenario is plausible, as these companies already hold a sufficient amount of treasury stocks and therefore have a high potential to leave the stock market if necessary,” Jung Eui-jung, head of the Korean Stockholders’ Alliance, said.

A treasury stock refers to a company’s own stock that it has repurchased from the open market or from shareholders.

According to corporate market tracker FnGuide, the proportion of issued shares that are held as treasury stock is at 53.43 percent for Telcoware, 53.1 percent for Shinyoung Securities, 48.75 percent for Ilsung IS and 46.57 percent for Chokwang Leather.

The ratio was 53.43 percent for InfoVine and 46.11 percent for MAKUS.

Under the Securities and Exchange Act, voluntary delisting is permitted if a controlling shareholder holds at least a 95 percent stake in a company.

“As the ratio of treasury stock is nearly 50 percent or even higher for the involved companies, they may be able to increase the ratio to 95 percent soon if they come up with the right strategy,” said Shin Ki-soo, a financial services consultant.

The officials speculated that the companies may announce a public tender in the first half of the year, given that the next government will begin its term immediately after the June 3 election.

Sogang University law professor Lee sang-bok said that regardless of the election outcome, more listed companies in the coming years “may be pressed to observe rules on enhancing shareholders’ rights.”

The professor noted that, in addition to the revised Commercial Act, ousted President Yoon's administration underlined a need to increase shareholders’ returns to boost the undervalued Korean stock market.