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Activist investors smoke out South Korea’s undervalued companies

Ginseng is famend in Asian drugs for its health-giving properties — however a outstanding South Korean activist investor thinks his prime goal would assist shareholders by giving it up.

Lee Sang-hyun, the chief of South Korean activist fund Flashlight Capital Companions, has been pushing for the nation’s largest tobacco producer KT&G to spin off its ginseng unit and appoint two famend impartial exterior administrators. He thinks ginseng may be higher marketed and entice extra long-term buyers as a standalone enterprise.

KT&G has rebuffed the fund, which holds a 1 per cent stake within the firm. However Lee is prepared for a showdown on the firm’s normal assembly on Tuesday the place he hopes to win over different shareholders.

“KT&G is sort of a bare orphan on the road, ignored by passers-by,” stated Lee, who led Carlyle Group’s Korean enterprise earlier than beginning his fund. “Often, shareholders get indignant when an organization does one thing unsuitable. However on this case, we’re indignant as a result of it isn’t doing something to spice up its worth.”

A rising variety of activist buyers are concentrating on Korea, with home gamers taking over the previous guard to unlock increased share costs. The nation’s corporations are among the many most cost-effective on this planet, with the Korea Composite Inventory Value Index buying and selling at a price-to-book ratio of about 0.85 instances, near a 20-year low.

The variety of corporations focused by activist buyers elevated six-fold over the previous three years to 47 in 2022, in keeping with analytics firm Insightia. That makes Korea the fifth-largest activist market on this planet.

“There are such a lot of undervalued corporations resulting from poor governance. We’re simply concentrating on low-hanging fruits first,” stated Changhwan Lee, the pinnacle of Seoul-based activist fund Align Companions.

Align scored a decisive victory over Ok-pop company SM Leisure’s founder after which controlling shareholder on the annual assembly in March final yr.

With the help of different buyers, Align succeeded in getting a brand new impartial auditor on SM Leisure’s board and received different concessions from the company, akin to ending its unprofitable enterprise offers with its founder. Partly in response to those modifications, SM’s inventory value has practically doubled from its 2022 low.

“In only one yr, Align has managed to weaponise its practically one per cent fairness stake in SM into nearly 100 per cent progress,” stated Bernie Cho, president of DFSB Kollective, a digital media advertising and marketing and distribution company primarily based in Seoul and Los Angeles.

Prior to now, overseas hedge funds waged battles in Korea with combined outcomes. Elliott Administration’s founder Paul Singer was castigated as a vulture a number of years in the past resulting from his failed combat with Samsung’s ruling household. The fund later succeeded after placing strain on Hyundai to drop a controversial plan to merge two of its models.

The brand new era of home activist buyers needs to shake up Korea’s staid company tradition. Their campaigns resonate with the nation’s 14mn retail buyers, who’ve emerged as a drive within the nation’s $2tn inventory market and are warming to campaigns that focus on the “Korea low cost”.

“Disgruntled buyers, sick of a long time of trapped worth, are lastly awakening to shareholder activism,” stated Kang Sung-boo, the pinnacle of KCGI, who pioneered native activist campaigns towards corporations together with Hanjin Kal, the family-run conglomerate, and Osstem Implant, a dental gear maker.

KCGI, with a 6.6 per cent stake in Osstem, had known as for the resignation of the corporate’s chair, serving to personal fairness funds MBK Companions and Unison Capital take over the corporate via a young supply in 2023.

Activists say the probabilities of native agitators profitable their battles are rising, with indicators that institutional buyers such because the Nationwide Pension Service are additionally changing into extra aggressive in asserting their rights.

Forward of its normal assembly, KT&G stated it has “rigorously reviewed and thought of the current shareholder’s proposals” and that it’ll “try to make the most effective determination for the corporate and the shareholders.”

Lee vowed to proceed his combat till his calls for had been accepted, whatever the annual assembly’s outcomes.

“That is only the start. The corporate stays one of many most cost-effective on this planet. Our combat will proceed so long as they ignore shareholders,” he stated.