Draft of Korea Value-up Index guideline disappoints market

Jeong Eun-bo, CEO of KRX, speaks at the second seminar, introducing corporate value-up program, held at the Korea Exchange in Yeouido, Western Seoul. [YONHAP]

Financial authorities released a draft guideline for the corporate value-up program, only to be met with skepticism by the market due to a lack of concrete measures such as tax benefits and legal enforcement.

The Financial Services Commission (FSC), the Financial Supervisory Service (FSS) and the Korea Exchange (KRX) convened a second seminar on the Korea Value-up Index initiative on Thursday, disclosing a draft of the stock value enhancement plan.

A key aspect of the guideline calls for participating companies to select focal indicators and set mid- to long-term goals, and then prepare detailed plans to achieve them. The program consists of an expansion in research and development (R&D) projects, a reconstruction of business portfolios, the retirement of treasury stocks and the disposal of inefficient assets.

However, details on corporate tax incentives were not included in the guideline, leaving disappointed market insiders questioning the effectiveness of the initiative. Compliance with the guideline is also not mandatory, as it is up to companies to decide whether to take part in the program and follow it.

Stock prices in the representative value-up beneficiary sectors such as insurance, banking and securities initially gained heavily at the time of initial announcement, only to decrease following the release of the guideline.

“We will support the establishment of the value-up program as a part of long-term corporate culture rather than a short-term achievement," said Jeong Eun-bo, CEO of KRX.

The financial authorities have stressed the importance of nonfinancial indicators, saying improvements in facets such as corporate governance are necessary alongside financial gauges such as the Price-to-Book Ratio, the Cost of Equity and the Return on Equity to enhance corporate value.

Shareholders will be able to proactively engage on issues that have sparked social controversy over the years, such as the listing split-off subsidiaries and the unfair business practice of illegally awarding lucrative contracts to subsidiaries by parent firms.

“We will establish a future-oriented value enhancement plan for companies and provide investors with financial and nonfinancial details of companies all at the same time,” Jeong added.

Market analysts said the market is likely to reflect disappointment if there are no concrete results from the announcement.

"The authorities should have provided specific details that exceeded market expectations in order for the stock market to rise further," Lee Kyung-min, a researcher at Daishin Securities, said in a market report.

The guideline is scheduled to be finalized this month.

BY CHOI HAE-JIN [choi.haejin@joongang.co.kr]