The Federation of Korean Industries (FKI) analyzed 83 Korean companies’ foreign shareholding ratios, dividend payments, returns on equity, and increases in capital expenditures between 1998 and last year, and announced on July 23 that the companies recorded an average foreign shareholding ratio of 12.01 percent, an average ROE of 20.3 percent, and an average increase in capital expenditures of 34.65 percent in 1998. Conversely, the ratio went up to 23.23 percent, the ROE dropped to 11.34 percent, and the increase in capital expenditures plummeted to 3.62 percent in 2007.
It also mentioned that foreign hedge funds triggered a series of management disputes during the period in order to maximize their short-term investment returns. Hermes acquired 5 percent of Samsung C&T shares, put pressure on the top management and then, all of a sudden, sold its shares to take 38 billion won (US$32.4 million) in profits in 2004. In the following year, Sovereign took approximately 1 trillion won (US$854 million) in its dispute with SK, in which SK spent almost the same amount to protect its control. In 2006, Carl Icahn pocketed about 150 billion won (US$128 million) from KT&G.
Under the circumstances, Korean business groups are claiming that measures for protecting their rights as owners, such as the “poison pill,” disproportionate voting rights, and control-enhancing mechanisms should be brought in, since hedge funds are tempted to attack them by taking advantage of the Fair Trade Act, a relatively uniform corporate ownership structure, and other factors.
“If the current situation continues in which Korean enterprises are subject to reverse discrimination with regard to control protection, the national economy will be losing steam, as they have to spend more on it than on investment,” said Shin Seok-hoon, who is in charge of corporate policy planning at the FKI, adding, “Measures for the purpose need to be improved so that Korean companies can raise the value of their entities and the shares owned by stockholders.”