Activist investors smoke out South Korea’s undervalued companies

Ginseng is famend in Asian medication for its health-giving properties — however a distinguished South Korean activist investor thinks his prime goal would assist shareholders by giving it up.

Lee Sang-hyun, the chief of South Korean activist fund Flashlight Capital Companions, has been pushing for the nation’s largest tobacco producer KT&G to spin off its ginseng unit and appoint two famend unbiased outdoors administrators. He thinks ginseng might be higher marketed and appeal to extra long-term traders as a standalone enterprise.

“KT&G is sort of a bare orphan on the road, ignored by passers-by,” mentioned Lee, who led Carlyle Group’s Korean enterprise earlier than beginning his fund. “Normally, shareholders get indignant when an organization does one thing mistaken. However on this case, we’re indignant as a result of it’s not doing something to spice up its worth.”

KT&G has rebuffed the fund, which holds a 1 per cent stake within the firm. Lee’s proposals had been voted down on the firm’s normal assembly on Tuesday after failing to win over different shareholders however he isn’t giving up.

A rising variety of activist traders are concentrating on Korea, with home gamers taking up the previous guard to unlock greater share costs. The nation’s corporations are among the many most cost-effective on the earth, with the Kospi index buying and selling at a price-to-book ratio of about 0.91 instances, near a 20-year low.

The variety of corporations focused by activist traders elevated six-fold over the previous three years to 47 in 2022, based on analytics firm Insightia. That makes Korea the fifth-largest activist market on the earth.

“There are such a lot of undervalued corporations resulting from poor governance. We’re simply concentrating on low-hanging fruits first,” mentioned Changhwan Lee, the top of Seoul-based activist fund Align Companions.

Align scored a decisive victory over Ok-pop company SM Leisure’s founder after which controlling shareholder on the annual assembly in March final yr.

With the help of different traders, Align succeeded in getting a brand new unbiased auditor on SM Leisure’s board and received different concessions from the company, equivalent to ending its unprofitable enterprise offers with its founder. Partly in response to those modifications, SM’s inventory value has practically doubled from its 2022 low.

“In only one yr, Align has managed to weaponise its practically one per cent fairness stake in SM into nearly 100 per cent development,” mentioned Bernie Cho, president of DFSB Kollective, a digital media advertising and distribution company primarily based in Seoul and Los Angeles.

Previously, overseas hedge funds waged battles in Korea with combined outcomes. Elliott Administration’s founder Paul Singer was castigated as a vulture a number of years in the past resulting from his failed struggle with Samsung’s ruling household. The fund later succeeded after placing strain on Hyundai to drop a controversial plan to merge two of its items.

The brand new era of home activist traders needs to shake up Korea’s staid company tradition. Their campaigns resonate with the nation’s 14mn retail traders, who’ve emerged as a power within the nation’s $2tn inventory market and are warming to campaigns that concentrate on the “Korea low cost”.

“Disgruntled traders, sick of a long time of trapped worth, are lastly awakening to shareholder activism,” mentioned Kang Sung-boo, the top of KCGI, who pioneered native activist campaigns towards corporations together with Hanjin KAL, the family-run conglomerate, and Osstem Implant, a dental tools maker.

KCGI, with a 6.6 per cent stake in Osstem, had known as for the resignation of the corporate’s chair, serving to personal fairness funds MBK Companions and Unison Capital take over the corporate by means of a young supply in 2023.

Activists say the possibilities of native agitators profitable their battles are rising, with indicators that institutional traders such because the Nationwide Pension Service are additionally turning into extra aggressive in asserting their rights.

After the final assembly, KT&G’s chief Baek Bok-in mentioned the corporate would attempt to hitch the “world prime tier” by means of long-term growth-driven investments and aggressive abroad growth.

Lee vowed to proceed his struggle till his calls for had been accepted.

“That is just the start,” he mentioned. “The corporate stays one of many most cost-effective on the earth. Our struggle will proceed so long as they ignore shareholders.”

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