Tighter rules on business split-ups may benefit SK Inc.

As South Korean securities regulators are moving to tighten their grip on the growing trend of splitting up businesses and listing the spun-off arms, SK Group's holding company SK Inc. was picked as a key beneficiary of the stricter rules.

SK Group, the country's third-largest conglomerate, is among a handful of Korean business groups active in splitting off companies into separate entities and listing the new companies as part of an effort to boost their corporate value and raise fresh money.

But such business practices have drawn strong criticism from politicians and individual shareholders. Addressing their concerns about diluted shareholder value, financial regulators are trying to put a brake on the trend of parent-subsidiary listing.

As part of such efforts, the Korea Exchange hosted a seminar on Jan. 6 titled "Protecting minority shareholders from parent-subsidiary listings."

Measures to be implemented would include allowing existing shareholders to ask the company to be split up to buy back their shares and giving them rights to receive shares in the spun-off company ahead of other shareholders, according to market sources on Jan. 10.

Regulators are unlikely to ban the parent-subsidiary listing itself to keep spun-off units from listing on overseas markets such as Nasdaq. They would rather push the companies to come up with post-IPO measures to shore up shareholder value. 

LOWER DISCOUNT RATE

Analysts said toughening regulations on the business split-ups could change their valuation standards for both holding companies and subsidiaries. 

"If these measures are materialized, shares in holding firms or companies with its key business as an unlisted subsidiary will be revalued by the market," said Choi Nam-gon, an analyst of Yuanta Securities Co.

In other words, the market will likely apply a lower discount rate to holding companies from the current 50% or higher.

Choi picked SK Inc., formerly known as SK Holdings Co., as a key beneficiary of the regulatory tightening, given the sheer number of its unlisted subsidiaries.

Under its umbrella are SK Siltron Co., a local silicon wafer manufacturer; SK E&S Co., an energy arm; SK Ecoplant Co., a construction arm; and SK SK Pharmteco Co., a contract development and manufacturing organization (CDMO) company. 

Yuanta's Choi suggested 480,000 won ($402) as its new target price for SK Inc., or double its current share price, applying a 30% discount rate for its unlisted subsidiaries.

Meanwhile, POSCO Group Chairman and Chief Executive Choi Jeong-woo last month said that the group would never list on the stock market the steelmaking unit and other businesses to be separated from its to-be-launched holding company.

Write to Yoon-Sang Ko at kys@hankyung.com">kys@hankyung.com
Yeonhee Kim edited this article.