South Koreas IPO bust clouds equity markets as Chaebol structure restrains listings

South Korea’s equity IPO activity has plummeted this year aseffortsto boost corporate valuations run into trouble around governance reforms and the high amount Chaebols, or family-run conglomerates.

South Korea saw15 new listings in the year to June 3, with proceedstotalingaround $700 million, according to LSEG data. By comparison, new listings averaged 80 per year between 2020 and 2025, with around $8 billion, the data show. Malaysia’s new listings andproceedsalmost double South Korea’s.

By contrast, the Kospi is the top-performing major index worldwide, more than doubling in value in the year to Monday.

Chaebols, which were once central to South Korea’s industrial development, are now “more of a hindrance than a help for creating new, independently listed champions,” according to Polka Mishra, partner at Javelin Wealth Management in Singapore. South Korea’s inheritance tax of 50% for amounts exceeding 3 billion won ($2 million)gives conglomerates anincentive tokeep valuations and free float low, she said.

At issue: In 2024, South Korea launched the “Corporate value-up initiative” to end the so-called “Korea discount,” in which shares trade at lower levels than overseas peers.The country made three rounds of amendments to the Commercial Act to improve minority shareholder protection and corporate governance.

The five largest conglomerates – Samsung, SK, Hyundai Motor, LG, and HD Hyundai –accountedfor around 70% of South Korea’s equity market cap as of Monday, according to Korea Exchange data

Parent-subsidiary listings, which refer to a unitpursuing its ownlisting, will “be prohibited as a general principle,” Korea Exchange CEO Jeong Eun-bo told CNBC on June 11.They can be seen as diluting the parent company’s value at the expense of minority shareholders while letting controlling familiesretaincontrol of the newly listed subsidiary.

Measured by the value of cross-held shares between listed companies,these accounted foraround11% of South Korea’stotal market capas of last year, according to the Financial Services Commission, compared with about 4% in Japan and 3% in Taiwan.

South Korea’s market operator plans to direct capital to new companies by delisting around 300 companies by next year, Korea Exchange’s Jeong said.

The Korea Exchange is encouraging new listings while swiftly removinginsolventcompanies from the market, Jeong said.Ultimately, “so that we can cut off unfair trading practices and expand access for new ventures seeking to list.”

While the decline in numbers has raised parent companies’ valuations, the slowdown has dampened the fundraising and exit environment for venture capital funds, said Lee Hyo-seob, senior research fellow at the think tank Korea Capital Market Institute in Seoul.

TheIPO slowdownsuggests the market is”evolving into a more selective, quality-driven market, with capital increasingly concentrated in a narrower set of sectors and issuers,”said JungikPark, IPO leader for South Korea at EY.

South Korea already has a”high number”oflisted companies,totalingaround 2,700, Park said.That’sroughly halfthe numberin the U.S., even though South Korea’s equity market cap isonlyafractionof that of the U.S.

The limited IPO activity in South Korea is a double-edged sword for thebroadercapital market, said Lee Hyo-seob, senior research fellow at the think tank Korea Capital Market Institute in Seoul.

While fewer parent-subsidiary listings have raised parent companies’ valuations, the slowdown has dampened the fundraising and exit environment for venture capital funds, Lee said.

Still, Jeong ofKorea Exchangesaid the drop in IPOsreflected a transitional phase in the country’s efforts toboost corporate valuations.

“Once the government issues clearer guidelines on parent-subsidiary listings, I expect companies to move forward more actively with their listing processes,” he said.