South Korea's ECM Deals Set to Boom Amid Corporate Governance Reforms

Goldman predicts Korea's ECM boom with governance reforms and the lifting of the short-selling ban, driving significant share sales.

By Athena Xu

4/4, 01:33 EDT

Key Takeaway

  • Goldman Sachs predicts a boom in Korea's ECM deals due to corporate governance reforms and the end of the short-selling ban.
  • South Korea's ECM activity surged to 3% of global deals in Q1, with record block sales and share placements at $4.1 billion.
  • Despite optimism, concerns over enforcement and details of the "Corporate Value-up Program" persist alongside short-selling ban issues.

Corporate Governance Reforms

South Korea is poised for a significant shift in its corporate landscape as authorities push for enhanced corporate governance and transparency. Goldman Sachs Group Inc. anticipates an increase in share sales from traditional businesses, particularly in the industrial sector, as part of the "Corporate Value-up Program." This initiative aims to improve company valuations through better management practices, unwinding cross-holdings, and boosting shareholder returns. Phyllis Wang, head of Asia ex-Japan ECM syndicate at Goldman Sachs, highlighted the expectation for a "real, top-down focus on improving corporate governance, transparency, and shareholder value creation," drawing parallels to similar reforms in Japan that led to expanded share sales across various sectors.

Equity Market Dynamics

The efforts to enhance corporate governance are already bearing fruit in South Korea's equity capital market (ECM). In the first quarter, South Korea's ECM activity accounted for 3% of global deals, up from 1% in the same period last year. Block sales and share placements surged to a record $4.1 billion, nearly 20 times the amount for the same quarter last year, with significant contributions from the banking sector. Additionally, the anticipated end of a blanket ban on short selling in June is expected to further invigorate the market by reopening paths for derivative-based equity products.

Regulatory and Market Challenges

Despite the positive momentum, the "Corporate Value-up Program" has faced criticism for its lack of enforcement and concrete details. Investors are seeking more information on key performance indicators, timelines for implementation, and potential costs for non-compliance. The recent reimposition of a full ban on short selling, ahead of general elections, has also sparked concerns among international investors and market analysts. Critics argue that without the ability to express views on market and stock mispricing, the credibility of South Korea's $1.7 trillion equity market could be undermined in the long term.

Street Views

  • Phyllis Wang, Goldman Sachs (Bullish on South Korean companies):

    "There is an expectation for real, top-down focus on improving corporate governance, transparency and shareholder value creation — all of which are attractive to investors... we are very excited about Korea."