Tech poster child poses a problem for Korea Inc

SM Entertainment Co

23/07/2024 12:00

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own. Refiles to add hyperlink.)
    By Robyn Mak
       HONG KONG, July 23 (Reuters Breakingviews) - South Korea
is often rocked by scandals at its entrenched family-run
conglomerates led by Samsung, but its younger technology stars
are problematic too. The arrest on Tuesday of billionaire Kim
Beom-su, also known as Brian Kim, for stock price manipulation,
comes at a delicate time for his Kakao empire. Yet a
heavy-handed crackdown on the company could jeopardise the
country's new breed of promising global businesses.
        The founder is accused of inflating the stock price of
K-pop agency, SM Entertainment  041510.KQ , which was at the
centre of a controversial bidding war in early 2023 between
Kakao, SM's current parent, and a rival agency, Hybe
 352820.KS . Kim has denied any wrongdoing. Shares in his $13
billion holding company Kakao Corp  035720.KS  had lost a
quarter of their value this year, and shed another 5% after news
of Kim’s detention emerged. 
    The self-made billionaire's empire is eye-catching. In 2010,
Kim launched a messaging app KakaoTalk; today, the platform
counts a whopping 93% of the population as users and Kakao has
expanded into ride-hailing, payments, gaming, healthcare and
more. Kim and affiliated entities control a 24% stake in the
holding company which sits atop of over 100 subsidiaries
including digital lender Kakao Bank and Japanese comic app
Piccoma.
    Over the past few years, however, the group has lurched from
crisis to crisis. Its ride-hailing arm is under scrutiny for
unfair business practices, with the country's President Yoon Suk
Yeol last year blasting its behaviour as monopolistic and "very
immoral". The company has also grappled with corporate
governance lapses: following spinoffs of Kakao Pay and Kakao
Bank, senior executives were under fire for cashing out stock
options at the expense of public investors; earlier this year,
Kakao Mobility was fined by financial watchdogs for inflating
revenue. Amidst a management revamp, including changing chief
executives twice in two years, Kakao created a separate body
chaired by Kim tasked with overhauling governance.
    On one hand, Yoon's pro-business administration will want to
send a message that it is serious about cracking down on
corporate wrongdoing after it pardoned Samsung Electronic's
 005930.KS  Jay Y. Lee in 2022, who was convicted for bribery in
a massive corruption scandal. On the other hand, Kakao and peers
represent Korea Inc's next generation that have the potential to
go global as pop bands like BTS and Korean dramas like Squid
Game take the world by storm. Naver's online comics platform
Webtoon  WBTN.O , for example, recently raised $315 million in
New York. It will be a struggle for Seoul to strike the right
balance.
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    CONTEXT NEWS
    The billionaire founder of South Korean tech giant Kakao
Corp, Kim Beom-su, was arrested on July 23 on accusations of
manipulating stocks during the acquisition of a K-Pop agency
last year.
    Prosecutors say Kim, also known as Brian Kim, was involved
in manipulation of the stock price of SM Entertainment in
February 2023 to hinder a competitor, Hybe, from acquiring the
K-Pop agency.
    Kim has not been charged with wrongdoing and has denied the
accusations, saying he has never ordered or tolerated any
illegal activity, the company said in a statement. Kim's arrest
would last up to 20 days, during which prosecutors are expected
to investigate further before bringing charges, according to
South Korean criminal procedure.
    Kakao shares were down 4.6% to 39,150 won during late
morning trading in Seoul on July 23.

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Graphic: Kakao Corp's shares have steadily declined this year   
https://reut.rs/3LV56ex
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 (Editing by Una Galani and Aditya Srivastav)
 ((For previous columns by the author, Reuters customers can
click on  MAK/   
robyn.mak@thomsonreuters.com))