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Measures to Tackle ‘Korea Discount’: Details of the Guidelines for the Corporate Value-Up Plan Unveiled

2024.06.03

Following the first joint seminar organized by the Financial Services Commission (the “FSC”), the Korea Exchange and other related institutions in February where the FSC set out major initiatives for the “Corporate Value-Up Program” to tackle the so-called Korea discount– the tendency for Korean listed companies to trade at lower valuations compared with their global peers – the proposed guidelines (the “Guidelines”) for the Corporate Value-Up Plan (as defined below) were unveiled during the second joint seminar held on May 2, 2024.  The Corporate Value-Up Program bears three key pillars of (i) offering incentives such as tax benefits to listed companies to (ii) voluntarily prepare and communicate their corporate value enhancement plans (the “Corporate Value-Up Plan”) through disclosures and (iii) supporting investors in making informed investment decisions through a new corporate “value-up” index and establishing support systems such as a dedicated team at the Korea Exchange. 
 
Focused on improving corporate governance and shareholder returns and enhancing self-regulatory requirements, the recent proposal of the Guidelines provides principles and examples of how listed companies can establish their own Corporate Value-Up Plan and ways to communicate with investors regarding the Corporate Value-Up Plan on voluntary and self-initiated basis. 
 
 
Key Features of the Guidelines 
 
With the overarching theme of autonomy under the Guidelines, listed companies are advised to (i) first select key indicators including, without limitation, the Price-to-Book Ratio (“PBR”) and Price-to-Earnings Ratio (“PER”) and (ii) devise detailed goals and plans at least once a year based on the selected key indicator.  Noting that the Corporate Value-Up Plan is subject to disclosure through Korea Investors’ Network for Disclosure System (KIND) prior to publication on the relevant listed company’s website, it is worth noting that listed companies will not be penalized if their goals are not met – adjustments and corrective disclosures in the event of errors and/or significant changes in management plans will suffice. 
 
Pursuant to the Guidelines, the following contents are encouraged to be included in the Corporate Value-Up Plan: 
 
<div style="background:#eeeeee;border:1px solid #cccccc;padding:20px;">1. Company Overview: Comprehensive description of the company which shall include basic corporate information such as business industry, major products and services, and company history. 
 
2. Current Status Analysis:
<ul>
	<li style="padding-left: 20px;">Current Status of Business: Analysis based on the current market environment, competitive advantages, and risks.</li>
	<li style="padding-left: 20px;">Financial Indicators: Market evaluation (which may include PBR and PER), capital efficiency (which may include return on equity and return on invested capital) and shareholder returns (which may include dividend payout and treasury stock cancellation).</li>
	<li style="padding-left: 20px;">Non-Financial Indicators: Corporate governance factors related to protection of the rights and interests of general shareholders, responsibility of the board of directors and independence of auditors.</li>
</ul>
 
3. Set Goals: Clear mid-to-long-term goals in numerical terms (or by alternative methods such as qualitative descriptions). 
 
4. Planning: Specific plans to achieve the goals which shall include investments, asset disposals and expansion of R&D investments. 
 
5. Implementation Evaluation: Description of the efforts the company has made in implementing the plans in between disclosures (annual basis disclosures recommended) and specifying qualitative analysis of what is working well and what needs to be improved. 
 
6. Communication: Description of the current status, performance, and future plans of their communication with shareholders and other market participants, with respect to the companies’ value-up plans.</div>
 
Although the Guidelines were met with certain degree of market disappointment due to the lack of specific details regarding tax incentives for participating companies and the voluntary nature and potential omission of key content from the disclosure, thanks to corporate autonomy afforded under the Guidelines, Korea’s financial regulators plan to finalize the Guidelines by the end of May with an anticipation that the Corporate Value-Up Program will help improve the fundamental structure of the companies and the market. 
<img alt="" border="0" height="146" src="http://www.jipyong.com/newsletter/kli/50_202402/img/board.png" width="822" />

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