S.Korea’s top financial regulator pushes tax support for value-up program

South Korea is ramping up efforts to encourage companies to enhance shareholder value by providing tax support for its corporate value-up program, a top financial official said on Friday.

Speaking at the J.P. Morgan Korea Conference, Kim So-young, vice chairman of the Financial Services Commission (FSC), Korea’s top financial regulator, outlined a series of policy measures to advance the country’s capital markets and reinforce shareholder returns.

“We are consistently promoting policies, including incentives for high-performing value-up companies and tax support measures,” he said, addressing an audience of 20 domestic and international institutional investors at the event.

The official said the FSC is actively supporting the corporate value-up program announced a year ago, adding that 114 listed firms have so far participated in the program by disclosing their corporate value enhancement plans through regulatory filings.

With the introduction of value-up exchange-traded funds (ETFs) and exchange-traded notes (ETNs), he said more and more companies are embracing enhanced shareholder return measures.

The government's push for corporate value enhancement comes amid growing concerns about undervalued stocks and sluggish market performance.

With foreign investment in Korean equities remaining tepid, policymakers are looking for ways to improve market confidence and attract long-term capital inflows.

VALUE-UP INITIATIVE

In February 2024, the FSC announced a corporate value-up initiative to boost the domestic equity market’s depressed valuations.

In line with the government move, major Korean companies, including POSCO Holdings Inc. and Doosan Bobcat Inc., have unveiled a series of steps to boost shareholder value.

In September, Korea Exchange, the country’s securities exchange operator, launched a corporate value-up index, a key plank for the government’s push for better corporate governance and improved shareholder returns.

The index is designed to address the "Korea discount" issue and help investors identify blue-chip stocks.

Analysts said domestic companies’ dubious shareholder return policy, including the relatively low dividend ratio, is often cited as a Korea discount factor and a key reason for Asia’s fourth-largest economy's absence from MSCI's advanced market index.

IN TALKS WITH PARLIAMENT TO REVISE RELEVANT LAW

Kim’s remarks come as Korea moves forward with a broader agenda to reform corporate governance and incentivize shareholder-friendly policies.

The FSC vice chairman said the government has been in discussions with the National Assembly to expedite a revision of amendments to the Restrictions of Special Taxation Act to offer companies implementing a value-up program enhanced corporate tax deductions and other tax benefits.

He said the FSC is also tightening rules to build investor confidence in Korea’s capital markets.

“We will respond more rigorously to unfair trading practices by introducing measures such as restrictions on financial investment transactions and checks on executive appointments if they are found to be involved in wrongdoings.”

RESUMPTION OF SHORT-SELLING ON MARCH 31

Among the key regulatory changes, Korea has mandated a computerized system for short-selling and limited the repayment period for borrowed securities used for short sales.

In November 2023, the government imposed a blanket stock short-selling ban after some foreign banks were found to have executed a substantial amount of naked short sales, which is illegal in the country.

The FSC plans to resume short-selling on March 31 after revising relevant rules to level the playing field between retail and institutional investors and strengthening fines and punishments for illicit trading practices.

To enhance market efficiency and investor accessibility, Kim said the government has recently unveiled a series of measures, including the launch of Nextrade, an alternative stock exchange on March 4, the opening of an overnight derivatives market in June and the introduction of a licensing system for unlisted stock trading platforms in the third quarter.

The government has made regulatory improvements to strengthen shareholder protection concerning corporate spin-offs, insider trading, treasury stock transactions and dividend policies, he said.

The FSC vice chair is scheduled to attend an overseas investor relations session hosted by Morgan Stanley on Feb. 28, where he plans to discuss key capital market policies and exchange views with investors.

Write to In-Soo Nam at isnam@hankyung.com

Jennifer Nicholson-Breen edited this article.