Gov't to lower threshold for corporate M&As

The Korea Times

The Korea Times

Finance

Tue, September 26, 2023 | 07:41

Economy

Gov't to lower threshold for corporate M&As

Posted : 2023-03-27 17:14

Updated : 2023-03-28 10:43

Financial Services Commission (FSC) Vice Chairman Kim So-young speaks during a seminar on corporate M&A held at the Korea Exchange (KRX) in Seoul, Monday. Courtesy of FSC

FSC to ease capital qualifications for launching tender offer from April

By Anna J. Park

Financial authorities will ease prerequisite legal requirements for business acquisitions by companies in an attempt to foster corporate mergers and acquisitions (M&As).

The Financial Services Commission (FSC), the top financial regulator of the country, will lower the capital qualifications required of companies who attempt tender offers for the purchase of company stocks from the public stock market with the goal of acquisition.

As it stands, tender offers require companies to deposit the total amount of money necessary for purchasing targeted stocks at a local financial institution or short-term money market fund (MMF) during the entire tender offer period. Since this has been seen as inducing unnecessary and excessive corporate financing costs, the top financial regulator will ease the requirement.

From April, banks' letters of commitment (LOC), major institutional investors' capital contribution agreements and investment agreements will be acknowledged as proof of a company's capacity to finance a tender offer.

"The FSC expects that the change in the capital qualification regulation will significantly reduce a purchaser's burden of financing, which will, in turn, contribute to a sound development of the local M&A market," FSC Vice Chairman Kim So-young said during his speech at a seminar on corporate M&A in Seoul, Monday.

M&A expert Lee Seung-hwan, partner at law firm Lee & Ko, welcomed the government's move to lower corporate purchasers' financing burdens in tender offer procedures.

"It is positively evaluated that the government is taking efforts to overhaul related policies and regulations to foster M&As," Lee said during the seminar.

Financial Services Commission (FSC) Vice Chairman Kim So-young speaks during a seminar on corporate M&A held at the Korea Exchange (KRX) in Seoul, Monday. Courtesy of FSC

As corporate M&As are estimated to boost the economy's overall productivity by increasing management efficiency and business restructuring, the FSC plans to take a series of deregulatory moves to foster M&As in the country.

"Corporate M&As are also beneficial for economic recovery. While a prolonged economic recession could bring a permanent shock to an economy's growth potential by impairing human capital and stunting technological and infrastructure investment, active M&As among companies will raise economic resilience, facilitating a country's fast recovery," FSC Vice Chairman Kim highlighted.

Hwang Hyun-young, research fellow at the Korea Capital Market Institute (KCMI), who attended the seminar as a panelist, pointed out that the financial regulator needs to further revise local regulations to better suit global M&A standards. She also stressed that concerted efforts among government ministries, including the justice ministry, finance ministry, the FSC and more, are required to overhaul complex regulations and policies affecting the M&A market.

In recent years, the local M&A market has posted significant growth. The entire size of the local M&A market stood at around 49 trillion won ($37 billion) in 2013, and it nearly tripled to 134 trillion won in 2021. Yet it reduced to 78 trillion won in 2022 amid global interest rate hikes.

annajpark@koreatimes.co.kr