In response to concerns over transparency in the IPO process, the Korea Exchange is tightening its review of contractual agreements involving the largest shareholders of companies applying for listing. Consequently, companies seeking to list on the KOSPI and KOSDAQ markets will now be required to submit details of their largest shareholders' contracts to the Korea Exchange.
According to financial investment industry sources, the Korea Exchange has recently told securities firms to provide information about contracts involving a company’s largest shareholders when applying for an initial review before listing.
This measure aims to prevent incidents similar to that of HYBE’s Chairperson Bang Si-hyuk. Going forward, securities firms are expected to report any contracts involving the largest shareholders that could significantly influence investors' decisions. Failure to comply may result in the Korea Exchange rejecting the listing during the review process.
The change was triggered by the incident with Bang Si-hyuk. In 2020, just five days after HYBE went public, its stock price dropped nearly 50% from its peak from 35,100 won ($24.40) to approximately $12.30. This drop was partly caused by private equity funds (PEFs) selling off their shares. However it was later revealed that Chairperson Bang had made agreements with PEFs like Stic Investment, Estone Equity Partners, and New Main Equity before the IPO.
These agreements stated that if HYBE went public within a certain time frame, Chairperson Bang would get about 30% of the profits from the PEFs' sales. If the IPO didn’t happen, he agreed to buy their shares back. As a result, Stic Investment, which invested $72.2 million, made $668 million, while Estone Equity Partners and New Main Equity, which invested $86.8 million, also made a profit. In return, Chairperson Bang received around $278 million.
This deal benefited both Chairperson Bang and the PEFs: Chairperson Bang had the chance to make extra money, and the PEFs could reduce the risk of losing their investment. However, the problem was that this important information about the company wasn’t shared with the public.
A senior official from a securities firm said, “For Chairperson Bang, since he could make a fortune in extra profits, it would have been better to push the stock price higher right after the listing. However, other investors might not have realized the stock price wasn’t important at first, because Chairperson Bang’s shares were locked up. Once they knew about these hidden agreements, it likely affected their investment decisions.”
In response, an official from HYBE explained, “During the listing process, we shared the shareholder agreements with the underwriters, who reviewed them according to the law. We believe we followed all the legal rules during the listing.” As a result, the Korea Exchange’s decision to require companies to submit contracts involving their largest shareholders is seen as a response to this situation with HYBE.
Meanwhile, there’s been no progress on any legal action against Chairperson Bang, as there’s no clear evidence of wrongdoing. In the investment prospectus released a month before the IPO, HYBE said that 29.7% of the shares could be traded right after the listing. They also warned that selling these shares could cause the stock price to drop.
