Countermeasures Required in Response to Foreign Shareholders

Interested Companies Struggling to Come up with “Model Solutions”-

With its general shareholders’ meeting approaching on March 11, SK Corp. is gearing up for the meeting at the “enterprise level.” The reason is that it cannot avoid a head-on collision with Sovereign Asset Management in a meeting over the position of the oil refiner’s chairman, Chey Tae-won. As of February 23, SK’s foreign shareholding stands at 54.82 percent, including that of Sovereign (14,85 percent), exceeding half of the company’s total shares.

Chairman Chey has also thrown himself into the task of persuading foreign shareholders. Early this month, he communicated his firm’s governance improvement performance to foreign shareholders in Hong Kong and Singapore, and has been contacting U.S. investors since February 21.

Hyundai Department Store, which had recently caused controversy by buying 320,000 shares of Hanmu Shopping owned by Vice Chairman Chung Ji-seon, the eldest son of Chairman Chung Mong-keun, is also preparing itself for an offensive from foreign shareholders (who hold 45.62 percent of the company), with its general shareholders’ meeting scheduled for March 18.

A Hyundai Department Store official explained, “Inquiries over the Hanmu Shopping issue are already pouring in from foreign shareholders,” continuing, “We are planning to convince them that there is nothing to worry about by providing them with materials on share price calculation methods and projected return on investment.”

On the other hand, LG Corp. and LG Electronics, whose stakes of 5.46 percent and 5.7 percent have been purchased by Sovereign respectively, are not under big pressure. Because voting rights were determined as of late last year, Sovereign will be unable to exercise its demand for management participation aggressively in the upcoming general shareholders’ meeting.

Demand for a “Dividend Raise” is Likely to Grow Based on All-time High Earnings-

Large corporations that recorded high earnings last year expect that foreign shareholder demands for dividend expansion and self-tender will get stronger than ever.

A number of companies already have raised their dividend payments, reflecting foreign shareholders’ demands. Korea Exchange estimates that the total dividends of 202 companies listed as of December in 2004 to be as much as 7.1603 trillion won, a 42.37 percent jump from last year’s 5.294 trillion won.

Having posted 57.6324 trillion won in revenue and 10.7867 won in net profit last year, Samsung Electronics is also alarmed over what its foreign shareholders (54.77 percent) will demand in its general shareholders’ meeting slated to be held on February 18.

Kookmin Bank (with foreign shareholding of 77.17 percent), with its general shareholders’ meeting to be held March 18, has also decided to greatly increase the amount of its dividend. The dividend payments are 550 won per share, totaling 168.6 billion won, and the payoff rate has gone up sharply, from 24.8 percent in 2002 to 30.36 percent in 2004.

Foreign shareholders’ purchase of stocks is also on the rise. The foreign stake in the overall securities market rose from 41.97 percent on December 30 last year to the 42.31 percent as of February 23 this year.

“Companies are inevitably under bigger pressure if foreign investors, already possessing voting rights, buy additional stocks ahead of general shareholders’ meetings,” said Kim Gwang-yeol, Corporate Analysis General Manager at Dongwon Securities.