[Exclusive] 'First Application of Dual-Listing Ban': Myungshin Industry Subsidiary Drops Nasdaq Listing

Board Votes to "Oppose" Listing After Gathering Shareholder Input
First Case Applying the Guidelines on the Presumption Against Duplicate Listings
Numerous Parallels with the SK hynix-Solidigm Controversy

As controversy over a "duplicate listing" spreads around reports that SK hynix's grandchild company Solidigm may list on the Nasdaq in the United States, opposition from shareholders has also put the brakes on Myungshin Industry's efforts to list an overseas subsidiary. As this is the first case in which regulations have been applied to an overseas listing since the duplicate-listing guidelines took effect in August this year, it appears inevitable that the case will affect the future plans of other companies, including Solidigm.

According to the financial investment industry on October 21, Myungshin Industry disclosed that its board of directors decided the previous day to "oppose" the proposed overseas listing of its grandchild company, Simwon America. Myungshin Industry, a KOSPI-listed company, specializes in manufacturing automotive body parts. After gathering opinions through a shareholder survey from October 14 to 16, the company determined that its shareholder communication procedures and shareholder protection measures needed to be reviewed.

The decision was based on the "Guidelines on the Presumption Against Duplicate Listings," which require the boards of parent companies pursuing a duplicate listing to fulfill five obligations, including assessing the impact on shareholders, devising shareholder protection measures, communicating with shareholders, and determining whether shareholders' consent has been obtained. However, because Simwon America, which was established in California, was not formed through a physical split, a shareholder vote at a general meeting was not mandatory. Instead, the company gathered shareholder input through a survey.

Simwon America's listing is drawing particular attention as the first case in which the guidelines have been applied to an overseas stock market listing by a subsidiary of a Korean-listed company. The case could affect the plans of other companies that may pursue overseas listings, including Bear Robotics, owned by LG Electronics, and Boston Dynamics, part of Hyundai Motor Group, as well as the SK hynix-Solidigm case, which has sparked such heated controversy over "shareholder harm" that it has been raised in the National Assembly's audit of government offices.

Shareholders' reasons for opposing the plan also reveal issues similar to those surrounding Solidigm. Key concerns include the dilution of the value of their stakes resulting from the listing and the possibility of a discount. If existing shares are sold, current shareholders can sell their stakes and recover their investment. But if new shares are issued, existing shareholders' ownership percentages will inevitably fall.

The group's "governance structure," with listed companies stacked one on top of another, is also fueling concerns among ordinary shareholders. The MS Group's governance structure runs from the controlling family to MS Autotech (KOSDAQ), Myungshin Industry (KOSPI), Simwon Tech, and then Simwon America. If Simwon America lists on the Nasdaq, three of the four companies in this chain would be listed, creating a "triple-layer" structure. In the past, the MS Group faced controversy over harm to minority shareholders during governance restructuring, including when MS Autotech absorbed Simwon, after setting a merger ratio favorable to the controlling family.

The plan also brings Solidigm to mind because the company is citing "securing investment funds" as the purpose of the listing despite having sufficient financial resources. Myungshin Industry and MS Autotech have maintained that having the subsidiary directly secure funding for growth in North America would reduce the parent company's burden from capital contributions, borrowing, and payment guarantees. However, market observers point out that Simwon America's cash stood at $39.43 million (approximately KRW 52.2 billion) at the end of June this year, far exceeding the approximately $23.9 million in net proceeds expected from the public offering. They also note that the company has ample bank credit lines and healthy operating cash flow.

There is also considerable dissatisfaction with the shareholder protection measures that have been announced. Unlike Solidigm, which has not officially acknowledged reports of a planned listing and has offered no specific measures, Myungshin Industry and MS Autotech have already announced shareholder compensation plans. Myungshin Industry pledged special dividends totaling KRW 7 billion over three years, as well as cash dividends of KRW 100 per share. However, criticism that this is insufficient has continued, given that the year-end dividend it paid this year was also KRW 100 per share. MS Autotech proposed only measures such as enhancing corporate value and expanding investor relations (IR) activities, without disclosing a specific compensation amount.

An industry official said, "To win shareholders' acceptance, companies need to explain who will receive the benefits and bear the costs of a listing, and how clearly they need to raise funds." Lee Nam-woo, chairman of the Korea Corporate Governance Forum, said, "(This outcome) is a resolution by Myungshin Industry's board to protect the interests of existing shareholders and treat all shareholders fairly, in accordance with the revised Commercial Act," adding, "It will serve as a precedent for other companies to consider when pursuing overseas listings."

This content was produced with the assistance of AI translation services.