Changes in Law for Allocation of Treasury Shares as New Shares Post Spin-Offs in Korea in 2H24

• On 11 June, the FSC announced that the restrictions on allocation of treasury shares as new shares post spin-offs is expected to be made into law in 2H 2024.

• Meanwhile, starting 1 July, the financial regulators will make it more difficult for Korean companies to conduct spin-offs that have separate allocation of treasury shares as new shares.

• The top five stocks with highest percentage of treasury shares/outstanding shares are up on average 40.5% YTD.

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On 11 June, the Financial Services Commission (FSC) announced that there will be changes in laws on the restrictions of allocation of treasury shares as new shares post spin-offs in 2H 2024 (as early as 3Q 2024).

Meanwhile, starting 1 July, the financial regulators will make it more difficult for Korean companies (including both KOSPI and KOSDAQ listed) to conduct spin-offs that have separate allocation of treasury shares as new shares to restrict companies from this action prior to the actual passage of the law in 2H 2024.

In other words, although there will likely be more spin-offs in Korea in the next several months, the financial regulators will provide extra scrutiny on companies that try to complete spin-offs with the newcos (often holdcos) receiving separate allocation of treasury shares as new shares (with voting rights).

This is an attempt at protecting the minority shareholders after spin-offs. The financial regulators are trying to prevent cases where solid businesses with excellent fundamentals are allocated to new companies (post spin offs) but the surviving corporations essentially become shell companies.

There have been many spin-offs/split offs in Korea in the past several years, with the holding companies often controlling the treasury shares (with new voting rights) post spin offs. In this process, the minority shareholders' rights are diluted. Essentially, this practice will become much more difficult to carry out in Korea starting July.