Foreign investors increase stakes to gain more input

Foreign investors increase stakes to gain more input

Jun 22, 2005

Foreign funds have expanded equity investments in major Korean companies to influence management, prompting local shareholders to make aggressive stock purchases in their own companies, industry data showed yesterday.

The Korea Exchange said that large private equity funds from Singapore, the United States and Switzerland and elsewhere have recently increased their stakes in local companies largely in order to take part in managerial decisions.

In the latest case, Singapore-based Templeton Asset Management said in a regulatory filing Friday that it has increased shares in several companies including CJ Corp., Samsung Fine Chemicals Co., Hite Brewery Co., LG Household & Healthcare Ltd. and LG Petrochemical Co.

The fund's holdings in CJ and LG Household & Healthcare rose to 9.89 percent and 13.34 percent, respectively, from 9.29 percent and 12.7 percent.

Templeton Asset Management has also increased its control in Samsung Fine Chemicals and Hite to 17.22 percent and 7.03 percent, respectively, from 17.01 percent and 6.08 percent.

The Singaporean fund already owns 8.76 percent of Samsung Heavy Industries Co. and 14.49 percent of Hyundai Development Co.

Franklin Mutual Advisers, another Singapore-based fund, has acquired a 0.03 percent additional stake in KT&G, Korea's sole tobacco manufacturer, increasing its position to 7.14 percent.

U.S.-based Templeton Global Advisors has bought a 0.4 percent additional stake in SK Telecom Co., the country's largest mobile phone operator, to own 5.42 percent.

"As most foreign funds are more interested in some managerial decisions such as the selection of directors and auditors rather than decisions like dividend payments or capital increases, their investments are not yet seen as direct threats to management at local companies," a Korea Exchange official said. "But it's hard to ignore the steep pace of foreign investors increasing their presence in Korean companies."

Foreigners accounted for nearly 42 percent of the nation's total market capitalization in 2004, with overseas investors holding majority shares at major companies including Samsung Electronics Co., Korea's largest company by market value.

The trend has spurred the largest shareholders of Korea's listed companies to increase ownership in their companies to defend managerial control against what they perceive as increasing takeover threats, raising concerns over already sagging corporate investment, earlier data by the Korea Exchange showed.

The holdings of the largest shareholders and closely related parties increased to 43.21 percent this month at the Korea Composite Stock Price Index-listed companies, compared to 41.84 percent at the end of 2003 and 40.19 percent at the end of 2002.

Samsung Electronics saw the shareholdings of Chairman Lee Kun-hee and nine related parties and institutions rise to 25.44 percent as of last week, up from 15.31 percent at the end of 2003.

At Hyundai Motor Co., Korea's largest automaker, Chairman Chung Mong-koo and 20 aligned shareholders accounted for 28.96 percent in the first quarter, up nearly 4 percent from 25 percent a year earlier.

"As foreign investors have increased their influence in the local stock market in recent years and domestic companies feel growing hostile takeover threats by foreign capital, many largest shareholders seem to be increasing equity holdings in their companies or affiliates," another Korea Exchange official said.