Kim Min-kook, CEO of VIP Asset Management, presented a proposal for anti-stock-suppression legislation at a National Assembly forum on the 21st titled 'Legislative Tasks for Preventing Stock Price Suppression to Resolve Korea Discount.' Kim argued the proposed law addresses the structural cause of Korea Discount by removing economic incentives for maintaining low stock prices. The KOSPI index's recent gains mask deepening undervaluation, with 586 companies (73% of KOSPI-listed firms) trading below book value as of the 21st—an increase from one year prior. Korea's inheritance and gift tax structure calculates liability based on a four-month average stock price, creating incentives for controlling shareholders to suppress valuations before succession events.
KOSPI Index Masks Deepening Undervaluation in Korean Stocks
The KOSPI index's gains over the past year were driven primarily by semiconductor companies. Excluding the top five semiconductor firms, the KOSPI would stand at 2,787 points rather than 6,748 points as of the 21st, according to Kim's presentation. The number of companies trading below PBR 1.0 (price-to-book ratio below one, where market capitalization falls short of net asset value) reached 586 companies, representing 73% of KOSPI-listed firms. This figure increased compared to one year earlier, indicating that undervaluation deepened behind the index's apparent strength.
Tax Structure Creates Incentives for Stock Price Suppression
Kim identified the inheritance and gift tax calculation method as the root cause of persistent undervaluation. The tax is calculated based on the average stock price during a four-month period (two months before and after the reference date). Lower stock prices result in reduced tax burdens for controlling shareholders. Kim stated, "The tragedy where news of a controlling shareholder's health deterioration or death becomes a catalyst for stock price increases must now end."
Kim explained that controlling shareholders can maintain low stock prices through management decisions rather than illegal market manipulation. These methods include reducing dividends, retaining cash internally, using treasury shares to secure friendly stakes, dual listings, conservative earnings management around succession periods, and passive investor relations. Kim noted, "Most of these actions fall within the realm of management judgment rather than violations of capital market law."
Proposed Law Sets 80% Net Asset Value Floor for Succession Valuations
The proposed anti-stock-suppression law establishes a valuation floor for inheritance and gift tax calculations. When the largest shareholder inherits or gifts listed shares, if the stock price falls below 80% of the statutory net asset value, the valuation method applied to unlisted shares would be used, setting 80% of net asset value as the floor. This mechanism eliminates tax benefits from suppressing stock prices below that threshold. The rule applies only to succession events involving the largest shareholder and does not affect ordinary trading or general investors.
Kim noted this valuation approach is not a new concept: "The 80% net asset value floor has already been applied to unlisted shares and has been operating for nearly 10 years. Applying it to listed shares would enable fair value assessment while reducing institutional confusion."
Expected Policy Effects on Shareholder Alignment and Capital Allocation
The proposed law aims to align the interests of controlling shareholders with those of general shareholders. Under the new framework, suppressing stock prices would not reduce tax liability, while accumulating cash and idle assets would only increase tax burdens. Companies would have incentives to allocate retained cash toward new investments, dividends, and share buybacks. For investors, low-PBR companies would become revaluation candidates rather than permanently undervalued stocks.
The legislation also includes provisions to abolish the 20% surcharge on largest shareholders and to permit in-kind tax payment using listed shares. These provisions apply uniformly to all largest shareholders regardless of undervaluation status. Kim emphasized, "Controlling shareholders and minority shareholders are people in the same boat, but the current system makes them row in opposite directions. The anti-stock-suppression law ends this conflict and makes everyone look in the same direction—toward enhancing corporate value."
FAQ
What did Kim Min-kook propose at the National Assembly forum on the 21st?
Kim Min-kook, CEO of VIP Asset Management, presented a proposal for anti-stock-suppression legislation at a forum titled 'Legislative Tasks for Preventing Stock Price Suppression to Resolve Korea Discount.' The proposed law would set 80% of net asset value as a valuation floor when the largest shareholder inherits or gifts listed shares, eliminating tax incentives for suppressing stock prices.
How many KOSPI-listed companies currently trade below book value?
As of the 21st, 586 companies trade below PBR 1.0 (price-to-book ratio below one), representing 73% of KOSPI-listed firms. This number increased compared to one year earlier, indicating deepening undervaluation despite the index's recent gains.
How does Korea's current tax structure create incentives for stock price suppression?
Inheritance and gift tax is calculated based on the average stock price during a four-month period (two months before and after the reference date). Lower stock prices result in reduced tax burdens for controlling shareholders during succession events, creating economic incentives to maintain depressed valuations through management decisions such as reducing dividends, retaining cash, and passive investor relations.
