Sovereign, “Goodbye, Korea”

Sovereign Asset Management, which generated controversy over hostile mergers and acquisitions (M&A) of large conglomerates for the first time ever in Korea, effectively left Korea.

The company sold all of its shares of core affiliates of the LG Group, including LG Electronics and LG Corp., after selling its stake in SK Corp.

Sovereign had declared that it would improve Korea’s backward corporate governance through long-term investment and “shareholder activism.” However, the company sold its LG Group shares just six months after purchasing them, reminding everyone that it is just an investment fund pursuing profit under the name of improving corporate governance.

Selling its LG Group Shares-

Sovereign sold its shares of LG Electronics (7.2 percent stake) and LG Corp. (7.0 percent stake) on August 23 through after-hours block trading. The sale occurred approximately 20 days after it changed the purpose of owning the shares of the two companies from “management participation” to “simple investment” early this month.

By earning 51.3 billion won from LG Corp. and losing 101.5 billion won from LG Electronics, Sovereign posted an investment loss of 50.2 billion won. It is a poor record compared with early last month when it earned 803.4 billion won by selling its SK Corp. shares.

The prevailing analysis of the securities industry regarding the reason for Sovereign’s recent move is that it found a new high profit investment destination and concluded that LG Electronics’ value as an investment was compromised as its management record worsened unexpectedly.

It is reported that the investment fund is planning to invest almost two trillion won that it earned from selling SK and LG Group shares into other emerging markets, including Russia.

Sovereign is Just Another Investment Fund-

It is hard to deny that the issue of hostile M&A played a great part in Sovereign’s posting a whopping 450 percent in investment profit from SK Corp.

The investment fund’s confrontation with SK Corp. Chairman Chey Tae-won, a de facto owner of the SK Group, served as a catalyst in the stock price hike. A quick recovery of SK Corp.’s record helped by the international oil price hike also played a part.

Foreign investors offer a positive assessment, saying, “Sovereign contributed to improving Korea’s corporate governance.” However, Korean companies, including SK, dismissed the view, saying, “Sovereign is far away from improving corporate governance. It is no more than another investment fund which pursues profit.”

Cho Dong-geun, professor of Economics at Myongji University, said, “With the combination of loopholes in the regulation system, such as restriction of investment and limitation of voting rights applied only to Korean companies, and anti-chaebol sentiment, Sovereign set a precedent that foreign capital can hit the jackpot in Korea.”

Koo Hee-jin, analyst of Woori Investment and Securities, said, “It is undeniable that Sovereign highlighted the need for improved corporate governance in Korean companies,” adding, “Korean companies should enhance transparency and secure favorable forces in the international capital market with policy valuing shareholders.”

Do-Young Kim nirvana1@donga.com