[Edaily Marketin Soyoung Park Song Seung-Hyeon Reporter] It is expected that listed companies’ subsidiaries under their control or spin-off entities will face increased difficulty raising funds when conducting pre-IPO (pre-initial public offering) funding rounds. Although the guidelines on dual listings include exceptions for high-tech industries, analysts suggest that a conservative approach by investors is inevitable during the initial implementation phase, as review criteria will be established on a case-by-case basis. Industry attention is now focused on where financial authorities will strike a balance between regulations on “split listings” and the funding needs of innovative companies.

According to the domestic investment banking (IB) industry on the 14th, there are indications that fundraising will not be as smooth as before when subsidiaries or spin-off companies conduct pre-IPO investment rounds. This is because, from the investors’ perspective, not only is the period during which they deliberate on how to incorporate listing-related provisions into investment agreements—starting from the investment review stage—lengthening, but the conditions are also becoming more stringent.

For example, Sejong Law Firm stated in a related report “The listing of a subsidiary following a spin-off by a listed company (so-called ‘split listing’) is effectively contingent upon approval at a shareholders’ meeting under the 3% rule, which is expected to significantly increase the difficulty,” adding, “In practice, the preparation time and costs for the entire IPO process will increase, and governance procedures centered on the board of directors and special committees will become prerequisites for listing.”

Earlier this month, the Financial Services Commission and the Korea Exchange released the “Detailed Standards, Exchange Regulations, and Guidelines for Prohibiting Duplicate Listings and Allowing Exceptions.” These apply when a listed company separately lists an unlisted subsidiary that it effectively controls. This also includes parent-subsidiary structures formed through asset spin-offs, acquisitions, or the establishment of new entities.

Prior to the announcement of the guidelines, the venture capital industry had expressed the view that “a distinction must be made between ‘chunking up’ listings by large conglomerates and normal spin-offs, and that exception criteria are necessary for cases involving strategic industries and business restructuring.” Their position is that if the focus is placed solely on regulation, the foundation for the growth of innovative companies in desperate need of funding will shrink.

In response to these industry concerns, the new guidelines include provisions that consider the need for independent fundraising by “high-tech industries”—such as biotechnology, artificial intelligence (AI), and semiconductors—as a factor in determining the legitimacy of a listing. This is because timely investment in research and development can determine the success or failure of a business. The venture capital (VC) industry is relieved for now, as the door to IPOs for deep-tech companies has not been completely shut.

Despite the measures introduced by the Financial Services Commission and the stock exchange, industry insiders have expressed the view that, during the initial implementation phase, the predictability regarding whether an IPO will be approved is low, leading to “an increased likelihood of valuation adjustments or investment holdbacks.” First, IPO reviews will not be conducted based on quantitative or uniform criteria but will be handled on a case-by-case basis. Additionally, the guidelines are structured to update review cases on a semi-annual basis.

Legal experts advise that pre-IPO investors should consider how to reflect the possibility of future listing failures or delays in their contracts from the investment review stage onward. A legal industry official stated, “Companies requiring business restructuring should consult thoroughly with relevant experts in advance rather than rushing into a restructuring plan that includes a dual listing,” adding, “A careful review is necessary to determine whether the company is subject to dual listing regulations and, if so, what viable listing options exist—including measures to protect shareholders.”

Domestic venture capital firms have begun thorough preparations. A Korean VC firm specializing in growth capital investments has also moved to strengthen its investment process. For example, it assesses whether the subsidiary’s roles—such as product, market, sales channels, business model, and supply chain—are distinct from those of the parent company. Dependence on the parent company is also a key area of scrutiny; if more than 50% of revenue or purchases originate from the parent company, the subsidiary is presumed to lack independence. Regarding independence, they examine whether the parent company’s largest shareholder or executives hold concurrent positions at the subsidiary and assess the extent of such involvement. They also verify whether major management matters are actually deliberated or decided upon by the subsidiary’s board of directors.

An official in the venture capital (VC) industry described the current climate, stating, “While investment itself is unlikely to decrease given the government’s push for scale-up investments, the pre- and post-investment checklists are definitely becoming more rigorous.” He added, “The future of unlisted biotech startups—which often function as subsidiaries of companies that make significant strategic investments—will also become an important agenda item.”