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Participation in Management by “Super Individual Investors” Increasing at the Expense of Small Investors
Financial Firepower
Participation in Management by “Super Individual Investors” Increasing at the Expense of Small Investors
  • By matthew
  • February 21, 2013, 10:06
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The Kosdaq market has been reduced to a place for money gaming for “Super individual investors (individual investors with large volume of assets)” as individual investors with considerable financial firepower are repeatedly buying shares under the pretext of participating in management and then exiting the market just after profit-taking.

According to the Financial Supervisory Service (FSS) on February 20, the Kosdaq is increasingly turning into a playground for super individual investors threatening management rights through massive buying of shares.

KJ Pretech, a supplier for LG displays, is embroiled in a legal wrangle with Lee Ki-tae, former vice president of Samsung Electronics. Mr. Lee, who had bought the company’s shares for mere investment purposes, shifted his focus to participation in management and increased his holdings to 17.22%. Hong Jun-ki, CEO of KJ, raised fears over the move saying, “If the company falls prey to a hostile M&A, it would lead to suspension of transactions with major customers, which represent 60 percent of its sales,” and in response, Mr. Lee is reportedly considering a legal action.

Set-top box maker Homecast is also involved in a dispute over management rights. Jang Byung-kwon, former CEO of its rival JB Amusement (formerly Hyundai Digital Tech) acquired a 20.26% stake in Homecast until January 28 for participation in management. On January 9, his holdings of the company shares overtook the existing largest shareholder Lee Bo-seon, who held a 15.24% stake. Mr. Jang also submitted a proposal to appoint a director and an auditor as part of efforts to secure management rights.

The problem is that these kinds of super individual investors are flirting with equity stakes at the expense of innocent small investors.

Following Mr. Lee’s proclamation of intention to participate in managerial affairs, shares of KJ Pretech, soared 21.19% in two days to 3,145 won from 2,595. Homecast also saw its shares skyrocket over 70% to 6,910 at some point on January 24 from 4,030 earlier this year. In fact, shares of the two companies have fallen back to the levels seen right before the conflicts over management rights came to the fore.

That fuels speculation in some corners that some kind of market forces will take profit after waiting for small investors to flood in.

Actually, super individual investors in Teems, in a sudden about-face, changed their position and took profit. Kim Sung-soo, who had emerged as the majority shareholder by buying stakes in the company from last November, under the pretext of participating in management, unloaded 5.01% of his holdings before market opening that day. His ostensible purpose of participation in managerial affairs was nowhere to be found.

While KYI, an M&A consulting firm which formed an alliance with Mr. Kim, increased its holdings in the company up to 13% since last November, Teems shares more than doubled at one time to 21,300 won from 10,600 won, resulting in Kim’s taking profits roughly twice as much the share price. But that came inevitably at the cost of small investors. Besides, as the company became excluded from the public market, it is expected to see its sales plummet about 70 percent.

One securities industry official said, “Greed-induced buying prompted by disputes over management rights with super individual investors, not over core corporate values, will inevitably lead to loss,” and dispensed advice to retail investors: “Those investors not only in Teems but in other firms are likely seeking to make huge amount of profits under the pretext of participation in management.”