Kosdaq rushing with spinoff of promising business ends up losing investors

Kosdaq members have followed their bigger counterparts in Kospi for spin-off of lucrative business arms, but their rushed push only ended up losing shareholders’ confidence and stock value.

According to the Korea Exchange on Sunday, 13 firms on Korea’s secondary Kosdaq market filed for spinoff plans in the first half of the year with 12 designed for spinoff that makes the separated company as a subsidiary of the parent company.

During the same period, nine firms on the Kospi pursued business split-ups. According to Korea Capital Market Institute, 55 percent of the total 377 spinoff cases during 2010~2021 came from the Kosdaq market.

The Kosdaq-listed firms have seen their stock prices down 9.8 percent on average after the disclosure of the spinoff. Captive spinoff or physical spinoff, in which a division becomes a separate accounting entity, but 100 percent owned by the parent company, is different from the equity spinoff, in which shares of a new division are handed out to the existing shareholders of the parent companies.

Kosdaq-listed KT Alpha separated its artificial intelligence (AI) and digital transformation (DX) parts business under the name of “Alpha DX Solution” in April, claiming that it would focus on commerce and content businesses. Ssangyong Information & Communications divided its cloud business under the name of “CloIT” in March. Software firm Sejoong also announced it would spin off its software part.

The Financial Services Commission (FSC) has revised the corporate reporting rule to require companies with assets over 1 trillion won to make separations public to protect minor shareholders’ rights, but the rule only applies to Kospi-listed firms.

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