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Regulators should devise steps to protect minority stockholders
LG Energy Solution (LGES), which will go public on Jan. 27, is likely to hit the jackpot with its market listing. The company will finish receiving subscriptions from individual investors Wednesday at the offering price of 300,000 won ($251.5) per share, the top end of the 257,000-300,000 won range it had offered. In the two-day book building conducted last week, institutional investors placed bids worth 15.2 quadrillion won, marking the first time a Korean company's IPO drew more than 10 quadrillion won.
LGES was established by splitting off the electric vehicle battery business from LG Chem. The parent company's share price plummeted as it lost its core part, inflicting heavy damage on existing shareholders. Cases of splitting off a company's most profitable and promising division and simultaneously listing both the parent company and its subsidiary are hard to find in other countries. That's because doing so sends the parent company's shares down steeply, causing direct damage to its shareholders.
Nevertheless, "IPOs through split-offs" occur frequently in Korea, as large shareholders want to inflate a new company's value easily as well as enjoy the fruits of doing so ― something that's never desirable. Faced with mounting public criticism, POSCO has decided not to list its new subsidiary on the market. However, the steelmaker's existing shareholders find it hard to shake off their concerns, knowing that its decision could change at any time.
Even after a company splits off a division, the financial authorities should prevent the simultaneous listing of the parent company and its subsidiary. When it's inevitable, the company should sufficiently explain the reason to shareholders and seek their understanding. Regulators ought to take such efforts into account when screening the listing.
It is also necessary to minimize damage to the parent company's minority shareholders by, for instance, giving them subscription rights to new stocks. The leading presidential candidates and the regulatory authorities are also aware of the problems caused by listing subsidiaries after split-offs, and have stressed the need to work out countermeasures. Politicians and bureaucrats should stop paying lip service and turn their words into actions as soon as possible.
