©Reuters. A note won by South Korea is seen in this May 31, 2017 illustrative photo. REUTERS/Thomas White/Illustration/File Photo
SEOUL (Reuters) – South Korea’s financial regulator announced reform proposals on Monday to push listed companies with low valuations to report plans to boost shareholder returns, in a bid to reduce the “Korean discount” on share prices.
South Korea is using Japan’s program to boost the value of its companies, analysts say, as its neighbor’s stock market rises to record highs.
Under the “Corporate Enhancement Programme”, the government will encourage and support companies’ voluntary efforts to return more capital to shareholders and improve governance, South Korea’s Financial Services Commission (FSC) said.
Companies will be able to refer to detailed guidance that the government will publish in the first half of this year for their reporting plans, the FSC said.
The FSC is also considering tax incentives – such as preferential treatment in tax policies – for companies that increase their market value and increase shareholder returns.
The regulator will also introduce an index of companies with strong shareholder value.
Joining the government’s push, the South Korean Stock Exchange said earlier this month it would set up a team dedicated to improving corporate governance while the national pension fund agreed to invest in companies working to increase their value.
“We expect it can help solve the ‘Korea discount’ problem,” once these measures are effective, FSC said in a statement.
The benchmark index fell 1% on Monday, with losses led by automakers and banks, often seen as undervalued. These sectors had recently seen a strong rally ahead of the government’s reform proposal.
Before the market opened, Finance Minister Choi Sang-mok said the government’s business reform plan would continue until the “Korea discount” was resolved.
The “Korea discount” refers to the tendency for South Korean companies to have lower valuations than global peers due to factors such as low dividends paid and the dominance of opaque conglomerates known as chaebol.