Sovereign Asset Management announced Monday that is has sold all of its 14.82 percent stake in SK Corporation. Since buying SK shares two years ago it had been in a dispute with the SK group, among other things demanding that chairman and CEO Chey Tae-won step down, having been sentenced to prison for falsifying financial records. The stated reason was improving the management structure. Sovereign lost at two shareholders' meetings, but it received quite a lot. It invested about W1 billion and came away with about W8 billion in returns. To the people that might look like a massive drainage of national wealth.
It would be futile at this point to regret the loss of national wealth and debate whether Sovereign's was a special investment seeking improvements in management structure or simple speculative capital. It was a costly lesson and so the lesson should be learned. The Sovereign affair occurred because the ownership and management structures of Korea's jaebeol's are weak and lack transparency. When the management rights of a jaebeol with trillions of Won in assets can be shaken up by a foreign investor bearing only W1 billion you can really sense the influence of opening the capital market. What happened shows you that that if a company has the value of its shares given low ratings for lack of transparency, that company is going to be food for the taking on the mergers and acquisitions market, which no longer has national borders. SK is no exception. As long as the ownership and management structures of jaebeols that are controlled by tycoons owning a small percentage of shares similar things can happen. The government and jaebeols themselves have to spare no effort at reforming how conglomerates are owned and managed.
In the meantime it would seem there needs to be some cool-headed thinking about foreign investors. You realize that whatever they say, they are still in the end after investment earnings. It would be worth learning from the fact that even Korea's very knowledgeable experts said that Sovereign was not speculative capital, that it was an investor that would contribute to positive changes in the way jaebeols are run, and that they sought to help it make that investment.
The Hankyoreh, 19 July 2005.
[Translations by Seoul Selection (PMS)]
[Editorial] The Lessons of Sovereign |
