[Series] ① Dual Listing: A Double-Edged Sword Threatening Corporate Value

Dual listing refers to the act of listing the same subsidiary of a company on multiple stock markets. This term typically describes cases where both the parent company and its subsidiary are separately listed, a subject that often sparks controversy in Korea.

When a subsidiary, which serves as a major revenue source for the parent company, is separately listed, investors gain the ability to trade the stocks of the parent and subsidiary companies independently. However, this often creates challenges in evaluating the values of the parent and subsidiary companies separately.

Dual listing is driven by motivations to secure capital and expand business operations but involves a complex structure that can lead to conflicts of interest among investors and market confusion.

Market Distrust and Declining Investor Confidence

LG CNS, a key IT service subsidiary of the LG Group specializing in cloud, artificial intelligence (AI), and big data, announced plans to secure significant capital through its listing to fund business expansion. However, this sparked controversy over dual listing.

LG CNS plays a central role in leading LG’s digital transformation and is a vital part of the group’s future strategy. While the listing could strengthen the company’s independent operations, concerns arise that it might disrupt the tight synergy between LG and its subsidiary. For example, even if LG CNS achieves outstanding results, if these are not transparently reflected in LG’s stock price, LG’s shareholders may feel disadvantaged. Conversely, the listing could dilute the parent company’s equity value and scatter capital.

Even if the listing is successful, there is a possibility that LG Group’s inter-subsidiary collaboration may weaken. As an independent listed company, LG CNS might prioritize shareholder interests over group-wide strategies, potentially undermining LG Group’s overall integrated strategy.

Following LG CNS’s listing announcement, some investors criticized LG for prioritizing short-term capital fundraising over protecting shareholder value. This sends negative signals to long-term investors. Additionally, the listing could further complicate LG Group’s governance structure, disadvantaging existing investors.

The controversy surrounding LG CNS is reminiscent of the 2020 case when LG Chem split its battery business into LG Energy Solution and listed it in 2022. While this move aimed to secure capital for the growing EV battery market and maximize corporate value, it also sparked shareholder backlash and concerns over corporate value distortion. LG Chem’s shareholders experienced losses as the stock price dropped after the split and found it difficult to evaluate the two companies’ values independently.

This example parallels the LG CNS controversy, illustrating that dual or spin-off listings can raise capital in the short term but also introduce risks of conflicts between parent and subsidiary interests, as well as declining investor trust.

Distorted Corporate Value and Strategic Decision Confusion

In 2012, SK Telecom acquired Hynix (now SK Hynix), which has since become one of SK Group’s major revenue sources. However, the dual listing of SK Telecom and SK Hynix has created several issues.

SK Hynix’s profits have not been fully reflected in SK Telecom’s corporate value, despite Hynix being a key revenue driver. Investors often prefer investing directly in SK Hynix rather than SK Telecom, hindering the parent company’s stock growth potential.

With SK Hynix as an independently listed company, its decision-making prioritizes shareholder interests over its role as a subsidiary. Strategic conflicts arise when SK Hynix plans capital investments or business diversification, potentially clashing with SK Telecom’s objectives.

When a parent company and its subsidiary are separately listed, it becomes challenging for investors to assess their values independently, especially when their performances are interconnected. The SK Telecom and SK Hynix case reflects these challenges, as SK Hynix’s global semiconductor success often failed to translate into expected stock price growth for SK Telecom.

The LG CNS controversy highlights the potential pitfalls of dual listing. Issues such as distorted corporate value, conflicts between parent and subsidiary interests, and declining investor trust underscore the structural limitations of dual listing.

Dual listing in Korea is deeply tied to corporate governance and market regulations, often causing repeated negative effects. It is essential to carefully assess its long-term impact on both investors and companies and approach the issue with caution.

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