This article was published on Feb. 25, 2025, at 4:41 p.m. on the ChosunBiz MoneyMove site.
LS Group is accelerating the initial public offering (IPO) of its affiliates. More than five group companies, including LS E-Link, which is making a comeback after withdrawing its listing preliminary review last year, are preparing for listing. Recently, discussions on a proposed amendment to the Commercial Act, which includes shareholder loyalty obligations, are actively underway, raising criticisms that it may contradict the intent of the law amendment.
However, LS emphasized that the listing of its affiliates could present a good opportunity for domestic investors. A representative from LS noted, “We fully understand and recognize concerns about duplicate listings,” but added, “However, massive investments are needed during the explosive growth of affiliates, and we believed that the best way to secure investment funds in a high-interest-rate environment is through an IPO.” The representative stressed that it could also reduce opportunities to invest in high-growth overseas companies through domestic listings.
According to the investment banking industry on the 25th, Essex Solutions, a great-grandchild company of LS Group's holding company, and KOC Electric, a subsidiary of LS ELECTRIC, have recently distributed requests for proposal (RFP) to major domestic securities firms and have begun the process of selecting underwriters. Both companies plan to complete presentations (PT) and the final selection of underwriters by early March to accelerate their listing preparations.
Essex Solutions has a governance structure established as follows: LS → LS I&D → Cypress Investment → Superior Essex (SPX) → Essex Solutions, while KOC Electric is governed in the order of LS → LS ELECTRIC → KOC Electric.
In the bid proposals sent to securities firms, Essex Solutions and KOC Electric confirmed they requested countermeasures against duplicate listings, including the selection of an appropriate listing market among the securities market and KOSDAQ, an appropriate public offering price, and the sale scale of existing shares for financial investors (FI). This is presumed to be conscious of the duplicate listing issues arising from repeated listings of affiliates, such as subsidiaries and great-grand subsidiaries.
Currently, LS Group has a total of eight listed companies, including its holding company, LS, such as Gaon Cable, LS ELECTRIC, LS Networks, LS Eco Energy, LS Materials, LS Securities, and LS Marine Solution. Including E1 and Yesco Holdings, which are not in direct equity relationships with the holding company but are linked to LS Group due to the ownership family's holdings, it amounts to a total of 10 companies. Counting the affiliates in the process of preparing for listing, such as LS E-Link and LS EV Korea, it exceeds 15.
Industry experts believe that if multiple affiliates of LS Group push for simultaneous listings, they will inevitably face issues related to duplicate listings. Duplicate listings between the parent company and subsidiaries can lead to discount issues that impair the value of existing listed companies. A representative from a domestic securities firm explained, “The bid proposal sent by LS Group includes requests related to duplicate listings,” adding, “It seems that considerable time will need to be allocated to discussing duplicate listings in the presentations as well.”
Essex Solutions and Superior Essex ABL (SEBAL) are also subject to split listings. Essex Solutions and SEBAL are subsidiaries of the American cable company Superior Essex. Last year, they established SEBAL by partitioning the telecommunications business sector, and the following year, they launched Essex Solutions by partitioning the winding business sector. They intend to list the telecommunications and winding business sectors separately, which were split from the parent company.
From the perspective of the holding company, LS, Essex Solutions and SEBAL are classified as great-grandchild companies. Industry insiders consider it unusual for both great-grandchild companies to pursue listings simultaneously. According to the Fair Trade Act's restrictions on the actions of holding companies, it requires holding companies to maintain 100% equity in their subsidiaries. However, since Essex Solutions and SEBAL are foreign subsidiaries, they can bypass this regulation.
A lawyer specializing in fair trade at a domestic law firm stated, “The intent of the regulation is to simplify the governance structure of holding companies, preventing their expansion in an excessive manner, and to avoid excessively large dominance,” adding, “However, this only applies to domestic corporations, so Essex Solutions and SEBAL, which are foreign corporations, are not subject to regulation.”
While scrutiny towards LS Group is intense, it cannot abandon the listings of its affiliates. In the process of expanding its scale, it had no choice but to attract external funding, and it must keep the listing channel open for investors’ exits. Most affiliates currently preparing for listing have signed contracts to complete listings within agreed deadlines with asset management firms and private equity fund (PEF) managers. Essex Solutions raised about 295 billion won from Mirae Asset Global Investments and KCGI Consortium in pre-IPO investments last year, and KOC Electric had previously promised to complete its listing within three years after selling 51% of its equity for 59.2 billion won to LB Private Equity last May.
LS stated that it did not partition its entities for the listings of Essex Solutions and SEBAL, but rather acquired already split entities. LS also explained, “We established a mid-holding company, Cypress Investment and Superior Essex, in order to directly acquire the U.S. entities,” stating that “the two companies lack substantive functions, making them subsidiaries, not great-grandchild companies.”
The issue of duplicate listings among domestic holding companies is not limited to LS Group. Earlier, duplicate listing controversies also arose surrounding HD Hyundai Marine Solution and LG CNS. According to a report published by IBK Securities titled “Increase in Duplicate Listings in the Domestic Market, IPO Investment Strategies Using Duplicate Listings,” the ratio of duplicate listings in the domestic stock market is about 18%. In contrast, the ratios for Japan, Taiwan, the United States, and China are 4.38%, 3.18%, 0.35%, and 1.98%, respectively.
The reason duplicate listings act as a discount factor in stock prices is due to profit double counting. Profit double counting refers to the situation where investors calculate the same corporate value twice when both parent and subsidiaries are simultaneously listed. The corporate value of the parent company is composed of its own business divisions and the equity values of its subsidiaries; thus, if the value of subsidiaries is evaluated independently, the parent company’s value of its subsidiary equity must inevitably be discounted.
Kim Jong-young, a researcher at IBK Securities, stated, “The average double counting ratio based on the annual net profit of controlling shareholders due to duplicate listings in the domestic stock market is about 11%,” and added, “Compared to emerging comparable countries like Taiwan and China, the duplication listing ratio in Korea is assessed as abnormal.”