The bull statue installed in front of the Korea Exchange (Image courtesy of Yonhap)
SEOUL, Dec. 25 (Korea Bizwire) — The South Korean government has introduced measures to limit the use of treasury shares by listed companies during corporate spin-offs, aiming to prevent misuse that could unfairly enhance major shareholders’ control.
The Financial Services Commission (FSC) announced on December 24 that amendments to the Capital Markets Act Enforcement Decree, approved at a cabinet meeting, will take effect on December 31.
The new regulations prohibit listed companies from allocating new shares to treasury stocks during spin-offs. This move addresses criticism that such practices, often dubbed the “magic of treasury shares,” allow major shareholders to gain control of new entities without injecting additional funds.
Previously, treasury shares were granted new shares during spin-offs due to legal ambiguities, despite lacking voting, dividend, and subscription rights. This loophole often benefited majority shareholders at the expense of broader shareholder interests.
Stricter Disclosure Requirements
The revised rules also mandate comprehensive disclosure requirements for holding and disposing of treasury shares to bolster market transparency and oversight.
Companies holding treasury shares exceeding 5% of total issued shares must disclose detailed reports, including ownership status, purpose, and future plans for the shares (e.g., additional purchases or cancellations).
When disposing of treasury shares, companies must reveal the purpose, the parties involved, reasons for their selection, and the anticipated impact on share value dilution.
Additionally, new rules restrict companies from establishing new trust contracts for treasury share purchases within one month of a previous contract’s expiration, ensuring more deliberate planning.
Record-Breaking Share Buybacks and Cancellations
As interest in enhancing shareholder value grows, the total treasury share purchases and cancellations by listed companies reached record highs this year.
By December 20, buybacks amounted to ₩18.7 trillion, and cancellations totaled ₩13.9 trillion—approximately 2.3 and 2.9 times higher than last year, respectively.
Focus on Protecting Shareholder Value
The FSC emphasized that these reforms aim to align corporate actions with shareholder interests. “By refining these systems, we aim to ensure that voluntary shareholder return efforts by listed companies lead to tangible protections for minority shareholders and enhanced shareholder value,” an FSC official stated.
These measures come as part of broader efforts to increase transparency and fairness in South Korea’s capital markets, particularly amid growing focus on shareholder rights and corporate governance.
Ashley Song (ashley@koreabizwire.com)
