S. Korean activist-led fund sets its first target to dispel 'Korea Discount'

A privately-held fund led by Jang Ha-sung, a South Korean corporate governance crusader, took its first step on Wednesday to improve lax management ethics for Korea Inc., by acquiring an influential stake in Daehan Synthetic Fiber Co., an affiliate of family-run conglomerate Taekwang. Since the 1997-98 Asian financial crisis, foreign investors and local economists have perceived that South Korean stocks are trading at a discounted value compared with other Asian markets because of their opaque management and shareholder-unfriendly practices, a perception known as the "Korea Discount."

Another factor for the Korea Discount is poor corporate governance in family-owned conglomerates such as Samsung and LG, which have been accused of illicit family wealth transfers or cross-shareholdings at the cost of shareholders.

Last year, Dubai-based Sovereign Asset Management eventually failed to oust SK Corp.'s convicted chairman Chey Tae-won, in a widely cited case for the Korea Discount phenomenon.

Chey, who was convicted of US$1.3 billion accounting fraud, is still the chief executive officer of SK Corp., the nation's top oil refiner, after being released on bail.

"For example, Samsung Electronics is a crown jewel in South Korea, but Samsung Group Chairman Lee Kun-hee and his family own just a 3.5 percent stake in the company," Jang said in a July forum held on Jeju island.

"As chaebol owners like Lee ignore management challenges against them, they don't accept market principles in management rights," Jang told his audience.

Previously, Jang, the dean of Korea University business school, had fought against powerful conglomerates by participating in annual shareholding meetings.

However, the 53-year-old professor was shifting his strategy to pose a bigger influence, by purchasing a stake to implement changes in conglomerates or chaebol.

In April, Jang set up a fund called the Korea Corporate Governance Fund Plc with a capitalization of about $130 million.

The Ireland-based fund hired New York-based Lazard Asset Management LLC as a manager. Foreign investors are likely to pay attention to Jang's move.

On Wednesday, shares of Daehan Synthetic jumped the 15 percent daily limit after Lazard said the fund purchased a 5.15 percent stake in the textile company.

Lazard said the investment is aimed at participating in Daehan Synthetic's management. To boost shareholder value, Lazard also demanded Daehan Synthetic sell non-core assets, increase dividend payments and make its board more transparent.

"Daehan Synthetic is a good company with valuable assets, but it has a governance problem," Jang said on the same day.

Jang accused Daehan Synthetic of financially helping Taekwang's cable television and financial business, although the company has no relations with broadcasting and finance.

Some market analysts speculated the Lazard-managed fund may buy a stake in the group's parent, Taekwang Industrial Co.

Seoul, Aug. 23 (Yonhap News)