Shape up or be delisted, Korean watchdog warns companies

Financial Supervisory Service Gov. Lee Bok-hyun speaks during a meeting with heads of financial think tanks in Yeouido, western Seoul, on Wednesday. [YONHAP]

Korea’s financial watchdog said that listed companies that do not meet certain standards should be removed from the stock market in a bid to improve corporate governance and boost shareholder returns.

Financial Supervisory Service Gov. Lee Bok-hyun said Wednesday that there should be an index related to shareholder returns and that companies that do not fulfill its standards should be removed.

“Among the listed companies, those that fall short of certain standards should be actively thrown out,” said Lee.

“For instance, there are cases in which mergers and acquisitions have been halted for longer than a decade among companies that have long been unable to grow or have poor financial indicators. Whether they should stay listed is questionable.”

The remarks followed the government’s recent announcement of the “corporate value-up program,” which aims to prioritize shareholder returns through incentives like tax benefits to support the valuations of stock markets in Asia’s fourth-largest economy.

The program, announced by the Financial Services Commission (FSC), aims to encourage listed companies to voluntarily set up and disclose valuation enhancement plans. The anticipated initiative was met with disappointment from investors for lacking details and means of enforcement.

“It’s too early to evaluate the government's policy based on a single announcement. As for Japan, it practiced various policy measures for three to longer than 10 years,” Lee said.

The FSC acknowledged the program's similarities with Japan's policies that bolstered its stock market to a 34-year high earlier this month.

Lee added the FSS will consider reducing the potential penalties imposed on sellers of the troubled financial products linked to the movement of the Hang Seng China Enterprises Index (HSCEI) if they provide compensation to its traders.

The FSS launched a probe this January into the sellers of the Hong Kong-tied equity-linked securities (ELS), which caused billions of losses upon their maturity, as the index plunged to less than half of its 2021 peak.

The agency is looking into whether investors of the Hong Kong-tied ELS were adequately informed of their risks, which has led some banks like KB Kookmin and Hana to temporarily halt the sales of the entire ELS products, citing volatility in the global financial market.

Lee said the FSS will bring up compensation plans for those who sold the financial products around next week. The draft is already complete, and it is being reviewed by related departments.

“Reasonable predictions could have been made on potential risks, considering the economic situations in Korea and China since early last year,” Lee added.

BY JIN MIN-JI [jin.minji@joongang.co.kr]