South Korean cable manufacturer LS Corp has dropped a plan to list its US unit after the deal drew heavy criticism from shareholders, and even the country’s president.
LS Corp on Monday withdrew an application for a W500bn (US$347m) Korea Exchange IPO of its affiliate Essex Solutions, which is a major supplier of Tesla and Toyota.
LS Corp said it took the decision after considering feedback from stakeholders, including minority shareholders, to enhance shareholder protection and trust. It will review alternative investment options with pre‑IPO investors.
According to local media, some shareholders criticised the planned IPO as a "duplicate listing" that would dilute their returns from the expected fast growth of Essex, a manufacturer of magnet wire and winding wire used in electric vehicles, automotive components and other industrial applications.
In South Korea, duplicate listings generally designate the spinoff and separate listing of primary, high-growth assets by a company, which is seen as diluting the parent’s business value and hurting shareholder interests. The criticism is usually levelled at chaebols, the family-controlled conglomerates that dominate the country's economy and have historically cared little for shareholder value.
South Korea president Lee Jae-myung, who denounced duplicate listings in his election campaign last year, reportedly criticised the LS Corp deal at a meeting with members of his political party on January 22, according to the Chosun daily, which quoted him as asking ''Are there still such cases?"
While Essex does not currently contribute a lot to LS Corp financially, investors expect the business to grow rapidly. It posted an operating profit of W54.9bn (US$38.5m) in 2024, representing 5.1% of LS Corp’s operating profit of W1.1trn, according to an IPO presentation in November last year.
Investors seemed to welcome the decision to drop the listing plan, with LS Corp's shares jumping as much as 8% on Monday before ending 2% higher at W233,500.
Mounting pressure
Essex filed a preliminary IPO application to the Korea Exchange in November. LS Corp argued this would not be a duplicate listing as it would basically relist Essex in Korea after it acquired the company in 2008 and delisted it from the Nasdaq.
LS Corp has also said it would consider setting aside some Essex IPO shares for existing LS shareholders, and it had no plan to list other subsidiaries such as LS Cable & System.
But mounting pressure from shareholders and the government forced the company to back down.
“The government maintains a strong view on the value-up programme and it believes spinoff listings may diminish the value of parent companies,” said a person familiar with the LS Corp transaction.
The value-up programme, introduced in February 2024, aims to tackle the "Korea discount" by encouraging listed companies to enhance corporate governance, increase capital efficiency and boost shareholder returns.
“I think president Lee Jae Myung prioritises policies that could boost up the Kospi index,” the person said.
Indeed, Lee campaigned last year on bringing the Kospi index above 5,000, an objective that became reality on Tuesday following a 76% rise in the index last year. The Kospi index hit another record high on Thursday, closing at 5,221.25, up 106% in the past year.
Since taking office last June, Lee has vowed to tackle poor corporate governance and boost companies’ valuations through the value-up programme.
In July, regulators revised the Commercial Act and made it a legal duty for directors to consider the interests of all shareholders rather than just the company. Korea Exchange is also reportedly looking to tighten regulations governing duplicate listings.
In limbo
The controversy over duplicate listings is expected to put other planned spinoffs from conglomerates in limbo. HD Hyundai Robotics, a unit of HD Hyundai, has recently picked banks for a KRX IPO. Semiconductor and AI-focused SK Ecoplant, a unit of SK Group, is also planning a KRX IPO of around US$800m this year.
“Following the Essex case, the government is likely to closely monitor other conglomerates’ spinoff listings. This may increase the difficulty for those deals to happen,” said the person.
Bankers expect some of these conglomerates will look to list their subsidiaries offshore instead.
“In an optimistic view, overseas listings could be an option for companies and conglomerates to consider,” said a South Korean ECM banker.
Essex was planning to use the listing proceeds to fund investment in US facilities to meet North American power grid replacement demand.
Korea Investment & Securities and Mirae Asset Securities were the arrangers.