SEOUL, March 31 (Yonhap) -- South Korean listed companies' dividend payouts to their shareholders will decline sharply from this year due to the amendment of a related law, sources said Sunday.
The government has revised an article of the Commercial Law to prohibit listed companies from covering their future losses with "unrealized" profit, which experts say will inevitably lead to a tumble in listed firms' dividend payments.
Unrealized profit, also called paper profit, refers to profit which has been made but not yet realized through a transaction.
Local listed companies were allowed to offset unrealized losses with paper profit, but the revised law requires them to list all their future losses in income statements, which could lead to a drop in the portion of earnings to be paid out in dividends.
According to the sources, the Financial Supervisory Service has called on insurance companies to maintain mid- and long-term consistency in mapping out their dividend policy, saying the amount of profit that can be doled out as dividends and actual dividend payouts could "drop markedly."
Market watchers said the rewritten law will likely deal a blow to insurers affiliated with the country's family-controlled conglomerates, major banks conducting large amounts of derivatives trading, large shipbuilders and major construction companies.
Disgruntled by the revised laws, local financial companies and conglomerates are demanding the government reverse course and repeal the amended article, they added.
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