Prolonged ‘LINE incident’ expected as South Korean and Japanese leaders draw dividing lines

After President Yoon Suk-yeol and Japanese Prime Minister Fumio Kishida outlined their stance on the LINE-Yahoo situation, expectations are rising that the equity negotiations between Naver and SoftBank will drag on.

Regarding the Japanese Interior Ministry’s administrative instructions to LINE-Yahoo, both politicians have made clear statements to end the conflict. President Yoon commented, “The instructions should not be understood as a request to sell Naver’s shares,” while Prime Minister Kishida called them “a request to review security policies.”

On May 26, President Yoon stated at a bilateral meeting at the presidential office in Yongsan, “As far as I know, the administrative instruction is not a request for Naver to sell its shares.” He added, “The government considers this issue independent of the diplomatic relations between South Korea and Japan and believes that it should be handled in a way that does not become an unnecessary point of contention between the two countries.”

Prime Minister Kishida also noted, “The administrative directive is a request to review security policies following a major security breach,” stressing that the two governments have communicated and cooperated on the matter from the beginning. This statement effectively refutes the domestic IT industry’s interpretation that the Japanese government’s directive is a request to sell stocks.

Following the LINE personal information leak incident late last year, Japan’s Ministry of Internal Affairs and Communications issued an administrative order to LINE-Yahoo twice in March and April, demanding a “review of the capital situation under Naver’s control.” This was interpreted as pressure on Naver to sell its shares, sparking controversy.

Naver and SoftBank each own half of the shares of A Holdings, LINE-Yahoo’s largest shareholder. The Japanese government believes that security issues could arise because Naver is both a subcontractor and a major shareholder of LINE-Yahoo.

As the controversy escalated, the Japanese government claimed that it had nothing to do with pressure on management rights. However, its subsequent actions underscored the need for proper management of the subcontractor and suggested that negotiations over participation rights would continue in some form.

The affiliated companies are also actively moving. Previously, SoftBank announced that it was negotiating with Naver to sell A Holdings shares. Naver also stated that it was discussing various options, including selling its shares.

Given the possibility that Naver may need to revise its overseas business strategy if LINE-Yahoo’s management structure changes, it is widely believed that the shareholding negotiations between the two companies will not be completed within this year. LINE has nearly 100 million users outside Japan, including in Taiwan, Thailand and Indonesia. Naver’s overseas business is also linked to LINE.