Korea to encourage lockup agreements, cornerstone investor in IPO crackdown

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Korea to encourage lockup agreements, cornerstone investor in IPO crackdown

Financial Services Commission Chairman Kim Byoung-hwan speaks during a seminar on regulatory reform for initial public offerings and delisting at the Korea Exchange in western Seoul on Jan. 21. [YONHAP]

Financial Services Commission Chairman Kim Byoung-hwan speaks during a seminar on regulatory reform for initial public offerings and delisting at the Korea Exchange in western Seoul on Jan. 21. [YONHAP]

 
Korea is tightening its rules regarding investments in initial public offerings (IPO) as part of a broader regulatory overhaul as the country seeks to resolve the perceived undervaluation of its shares under the Corporate Value-up Program.
 
The Financial Services Commission (FSC) announced the measures during a joint seminar co-hosted by the FSC, Financial Supervisory Service, Korea Exchange, Korea Financial Investment Association and Korea Capital Market Institute.
 

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The goal of the plan is to enhance the quality of the Korean stock market by upping its standards for newcomers and existing companies trading on domestic exchanges, according to the FSC.

 
“The Korean market has been displaying an imbalance, with a significant disparity between the growth in market cap and the increase in the stock market index compared to other major economies,” said FSC Chairman Kim Byoung-hwan in his remarks at the seminar.

 
“Achieving the ‘value-up’ of the capital market requires a steady pace of progress in the long term without losing momentum,” Kim said.

 
For newly listed companies, investors have often prioritized short-term gains instead of assessing fundamental growth potential and corporate value, resulting in excessively high offering prices and a subsequent drop in share prices following the IPO. Low-performing companies, on the other hand, remain on the stock market due to the current lenient standards for staying on the bourse.

 
Under the latest plan, the financial authorities plan to encourage institutional investors to sign a lockup agreement, which prevents them from selling shares for a set period of time following the IPO. At least 40 percent of IPO shares will be allotted to investors who sign a lockup agreement, with additional points given based on the period of the contract.

 
The authorities will strengthen the criteria for investors participating in book-building to prevent excessive price surges and restrict firms from employing indirect measures such as partaking in book-building through paper companies or funds of funds.

 
The government will also push to introduce a cornerstone investor system, which allows an investor to secure its stake in a company before it submits a securities filing with a set lockup period, and preliminary book-building, which enables underwriters to evaluate demand before setting an offering price.

 
Another pillar of the plan is to expedite the delisting process for underperforming companies.

 
While the current rule allows Kospi-listed companies with a minimum market capitalization of 5 billion won ($3.5 million) and annual revenue of 5 billion won to remain on the exchange, the thresholds will gradually rise to 50 billion won in market cap and 20 billion won in revenue by 2028. The revenue requirement will be further upped to 30 billion won by 2029.

 
For Kosdaq-listed companies, the thresholds will increase from the current 4 billion won in market cap and 3 billion won in revenue to 30 billion won and 7.5 billion won, respectively, by 2028. The revenue requirement will rise to 10 billion won by 2029.

 
The revenue requirement will apply only to companies with a market cap of 100 billion won or less for Kospi-listed stocks and 60 billion or less for Kosdaq-listed ones.


BY SHIN HA-NEE [[email protected]]
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