S.Korea concerned about takeover bids

SEOUL, Nov. 18 (UPI) -- A local Chamber of Commerce and Industry in Ulsan, South Korea's main industrial city, sent a letter on Wednesday to business leaders in the region to call for their purchase of SK Corp. stocks to protect the country's top oil refiner from "hostile" takeover bids by foreign investors.

The chamber of the city that houses Asia's single-largest refinery also has staged a campaign in which every citizen is urged to buy 10 shares of SK Corp to counter "hostile" takeover bid by foreign investors, referring Sovereign Asset Management, which led a move by foreign shareholders to shake up South Korea's family-run management.

The "buy SK Corp" campaign is aimed at "protecting national companies from hostile takeover bids by foreign investors and helping ease difficulties in management in our colleague businesses," the chamber said in a statement.

Sovereign, single-largest shareholder of SK Corp with a 15.4 percent stake, is leading a push to oust South Korea's family-run management and gain control of the oil refiner.

The Monaco-based investment company recently asked a South Korean court for approval to hold an extraordinary shareholders' meeting at SK Corp in which it would propose a vote to remove the company chairman Chey Tae-won, after the board of directors snubbed Sovereign's call for the meeting.

Earlier this year, Sovereign, allied with foreign shareholders, attempted to oust Chey accused of being involved in an accounting scandal last year at oil trading affiliate SK Networks Co. Ltd.

SK Corp. succeeded in keeping its management control after shareholders voted in favor of the new board candidates recommended by Chey, beating the candidates suggested by Sovereign.

The fund has vowed to try again to kick out SK Corp's founding family again next year's shareholders' meeting slated for March. The fund is now wooing supports from foreign investors who hold a combined 61.56 percent stake in the company. Among them, U.S.-based Wellington Management Co. holds a 9.97 percent stake and Capital Group has 6.75 percent stake.

Chey has only a 0.59 percent stake in SK Corp, but has managed the oil refiner with the help of SK Group's funding families and friendly investors, such as domestic creditor banks, who control some 17 percent stake.

Chey, heir to the company's founding family, controls SK Group, South Korea's fourth-largest conglomerate through his stake in SK Corp., the holding company of the family-run business empire.

The giant group with combined asset value more than 50 trillion won ($470 billion) is being swayed by the Monaco-based fund with just the investment of 170 billion won ($167 million).

SK Corp's case has reminded the vulnerability of South Korea's companies to possible hostile takeover bids by foreign investors, causing concerns of capital flight from the country. Sovereign has already raked in 1 trillion won ($939 million) in appraised profits from dividends and stock prices increase.

South Korea's other blue chips, including Samsung Electronics Co., Asia's most valuable company, also could be the target of a hostile takeover bid by foreign capital, industry analysts warn.

Foreign shareholders own a combined stake of about 60 percent in Samsung Electronics, the world's largest maker of computer memory chips and third-largest maker of mobile phones, whereas Samsung Group chairman Lee Kun-hee and his allies hold a 17.3 percent stake.

Kookmin Bank, the country's largest lender, was owned some 80 percent by foreigners, and POSCO, the world's fourth largest steel maker, 67.4 percent controlled by overseas investors. Hyundai Motor Co, the country's largest automaker, is also 51.2 percent owned by foreigners. SK Telecom Co, South Korea's biggest mobile carrier, is 48.8 percent controlled by foreigners.

The country's major banks, KorAm Bank, Korea First Bank, Hana Bank, and Korea Exchange Bank are also owned by foreign investors.

As a result of overseas investors' aggressive purchase of shares in South Korea's blue-chip stocks, foreign shareholders account for more than 50 percent of equity stake at 10 of the 20 biggest South Korean companies.

Analysts say foreign investors' greater influential is the result of hastily opening financial markets before domestic businesses could even rectify their corporate governance problems as well as a blind attempt to induce foreign investments in the wake of the 1997-98 financial crisis.

The hedge funds have been freely allowed to seek excessive profits or threaten managerial control of domestic businesses by capitalizing on their structural weakness, analysts say.

According to the central Bank of Korea, overseas investors reaped $2 billion in dividend payments from their foreign direct investment in South Korea this year until September, up 12,7 percent from a year earlier when it marked $1.7 billion. Foreigner took $2 billion for the whole of last year, the highest-ever, in divided payments from their FDI.

In the January-September period, South Korea attracted FDI worth $8.4 billion, up 82 percent from a year ago, more than $6.4 billion induced for the whole of last year.

The bank attributed the high growth in foreigners' profits to their greater stakes in the country's blue chips. "The companies have paid more dividends to their foreign shareholders," a bank official said. "In particular, foreign investors have managerial rights in more and more local companies," he said.

Local businesses leaders and government officials are concerned that foreign investors may join hands to take over more South Korean companies.

Alarmed by growing concerns about hostile takeover bids, the Seoul government has move to shield the local companies from attacks from foreign capital.

President Roh Moo-hyun, who favors pro-labor polices, said this week that he wanted the ownership of POSCO, Kookmin Bank and KT remain in South Korean hands because they are symbols of the successful South Korean economic development.

He stressed the end to use national pension funds to protect the managerial rights of these companies. "We see a lot of hot money coming into the country for the money game and they sometimes try to attack South Korean firms," Roh said in a speech during a visit to Argentina.

But the National Assembly committee endorsed a law on Thursday to restrict conglomerates from exercising voting rights of over 5 percent in affiliates from the second half of next year. The move is aimed at preventing conglomerates from using cross-share holdings to facilitate loans or prop up weaker affiliates. The reformist ruling party vowed to pass the bill next month.

But businesses call for multiple voting rights for shares to protect their company from a hostile takeover bid by foreign investors. "Legal measures are necessary to protect companies from hostile takeover bids by foreigners," said Lee Seung-churl, an executive at the Federation of Korean Industries, the lobby for the country's big businesses.