Private Equity Funds

 

SEJONG, March 6 (Yonhap) – South Korea said Thursday that it will ease regulations to bolster the activity of private equity funds (PEFs), a move intended to encourage corporate takeovers and investment in venture start-ups.

A PEF refers to a fund in which a limited number of investors pool their money to take over companies. They serve as major buyers in the merger and acquisition (M&A) market, but experts have said that their activities in South Korea have been restricted due to relatively tough regulations governing their establishment and operation.

The government said that it will soften many of the restrictions placed on PEFs under the fair trade law when their assets exceed 5 trillion won (US$4.67 billion). These include voting right restrictions and strict disclosure obligations, seen as discouraging investment and holding back the M&A market.

The government will also make it easier for PEF-owned companies to list their shares on the local stock market.

Currently, the government applies strict stock-listing standards to PEF-owned companies in order to ensure their management stability and investor protection.

Under such tough standards, no stock listing has been made by companies in which PEFs are the largest shareholders, virtually blocking those funds from recouping their invested money through the stock market, the government said.

The steps are part of a set of measures that the government is planning to bolster M&As and business restructuring by removing stumbling blocks standing in the way of corporate takeovers.

They are also in line with the recent three-year economic innovation plan focusing on reforming regulations and strengthening economic fundamentals. Boosting venture start-ups through M&As are among the main objectives of President Park Geun-hye’s signature long-term economic plan.

“The local M&A market turned south in 2010, and it has been shrinking significantly since the beginning of 2013,” a government representative said. “The slumping M&A market is not only restricting companies’ voluntary business rearrangements, but also hampering their restructuring and investment in small and venture start-ups.”

“As a main buyer in the M&A market, PEFs are growing at a steady pace, but their size still remains small compared with those in other advanced countries. Due to strict regulations on their establishment and operation, PEFs have failed to meet diverse M&A demands and face restrictions in growing in size,” it added.

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