Korea's value push is getting a much-needed spark

Korea Zinc

11/12/2024 12:00

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
    By Anshuman Daga
       SINGAPORE, Dec 11 (Reuters Breakingviews) - South Korean
President Yoon Suk Yeol's botched coup has plunged the country
into political turmoil and adds urgency for it to curb the power
of its family-owned businesses. Even before the crisis, the
benchmark KOSPI was one of the world's worst performing major
stock indices. That makes $22 billion Korea Zinc's  010130.KS 
shareholding meeting in January a key test.
    The company's investors will convene next month to discuss
the appointment of new directors to the board amid an escalating
fight for control of the metal smelter. Critics lambasted Chair
Yun B. Choi, a grandson of one of Korea Zinc's co-founders, for
using company funds to increase his control via a planned $1.8
billion share sale to thwart a takeover led by private equity
fund MBK and another founding family. Amid intense shareholder
pushback, he has ditched the stock issue and pledged to step
down from the board, though he will remain CEO.
    The messy saga showcases a problem at the heart of the
corporate governance disaster: existing commercial rules state
that directors' fiduciary duty is to the company, rather than to
those that own its stock. Mandating shareholders be treated
fairly and equitably may have helped to avoid the Korea Zinc
standoff, and would bring South Korean regulations more in line
with other Asian markets like Japan and Singapore.
    This lack of shareholder protections, says, Jonathan Pines,
lead portfolio manager for Asia ex-Japan at Federated Hermes, is
the biggest contributor to the Korea discount and has
significantly increased the country's cost of capital. Korea is
making little progress in resolving this issue, however.
    Seoul's "Corporate Value-up Program", rolled out in
February, encourages family-controlled conglomerates to publish
plans on how to improve valuations. Similar to Tokyo's campaign,
disclosures are voluntary. As of the end of November, though,
just 96 out of some 800 companies from South Korea's main KOSPI
market, or 12%, have announced or are considering plans, versus
90% in Japan's Prime market. Giants like Samsung Electronics,
for example, trade at earnings multiples far below global
rivals.
    The financial regulator in Korea is debating whether
tweaking the commercial law makes sense or if there are better
ways to force directors to broaden their responsibility to more
stakeholders. Korea Zinc's shareholders will probably vote
before there is a decision, but the outcome will stress the need
to act.
    Follow @anshumandaga on X
    
    CONTEXT NEWS
    
    Korea Zinc on Dec. 3 said its board has decided to hold a
special shareholders' meeting on Jan. 23 to discuss the
appointment of directors proposed by stakeholders Young Poong
and private equity firm MBK Partners amid an escalating fight
for control of the company.

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Graphic: Korean shares suffer from low valuations    https://reut.rs/3Za2Wh1
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 (Editing by Robyn Mak and Aditya Srivastav)
 ((For previous columns by the author, Reuters customers can
click on  DAGA/ 
anshuman.daga@thomsonreuters.com))