Why did SK Corp let Chey Tae-won, the chairman of SK Group, acquire a 29.4% stake in SK Siltron, a promising subsidiary of the SK Group?
The Economic Reform Solidarity said on October 10 that the civic group sent documents with the question to SK Corporation’s and SK Hynix's boards of directors. The group also asked the boards whether the process of acquiring Choi's stake was done in accordance with legal procedures or not.
SK Siltron is a manufacturer of silicon wafers, which are thin discs that are used as a basic material for semiconductors. SK Corp. signed a contract to acquire 51% of LG Siltron's shares from the LG Group in January of this year for 620 billion won. Among the remaining 49 percent, SK Corp. took over 19.6 percent from KTB PE and 29.6 percent held by creditors of Vogo Investment including Woori Bank was indirectly acquired by SK Group chairman Chey as the chairman struck a total revenue swap (TRS) deal with a securities company.
A total revenue swap contract is a method through which a securities company purchases stocks by setting up a special purpose company instead of an actual investor and then receives a regular commission from the investor. In other words, chairman Chey has the equity rights to and benefits from SK Siltron and the brokerage firms that acquired 29.4% for 253.5 billion won receive commissions. Through this, chairman Chey can actually exercise rights based on his stake by paying a small amount of money as a commission.
SK Siltron acquired by SK Corp. and chairman Chey Tae-won performed poorly after failing to be listed on the stock market in 2012, but its earnings improved in a recent semiconductor boom. Last year, its sales hit 826.4 billion won and operating profit 33.2 billion won. The company ranks fourth in the world's 300-mm wafer market with a market share of about 14%.
"It is a problem that SK Corp. did not acquire 100% equities in SK Siltron which is expected to record good business performances in the future and can generate synergies with SK Hynix and other affiliates and let chairman Chey who was a director of SK Corp take a 29.4% stake in SK Siltron," The Economic Reform Solidarity said. The Commercial Law and the Fair Trade Act prohibit the misappropriation of a company’s business opportunities. The two laws say that if a director uses a business opportunity related to his or her company's information or business to promote his, her or a third party’s interests, it is regarded as plundering profits that the company can obtain in the future.
The NGO also claimed that chairman Chey is trying to avoid regulations on internal trading by executing power based on his shares of SK Siltron through a total profit swap contract. The Fair Trade Act restricts internal trading by a company by taking trade amounts into account if equities held by its owner family exceed 20% (30% if the company is listed). Even at the moment, the total profit swap contract can make chairman Chey free from regulations. But even if chairman Chey directly takes his equities after SK Siltron is listed, his stake will not reach 30% so the chairman will not be subject to regulations.
"It is not clear whether or not chairman Chey’s acquisition of equities in SK Siltron is obviously illegal. But it can be said that the deal defies the purposes of law such as regulating making private interests through a fraud," the Economic Reform Solidarity said. “Make clear why SK Corp. did not acquire 100% equities in SK Siltron and let chairman Chey take a 29.4% stake in SK Siltron and whether or not this issue was discussed by SK Corp’s board of directors."