Activist fund says it’s not about the money

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Activist fund says it’s not about the money



One of the rising stars of Korean finance this year is Kang Sung-boo, CEO of activist fund Korea Corporate Governance Improvement (KCGI).

Kang and KCGI this year set their sights on Hanjin Group, a large conglomerate owned by the scandal-ridden Cho family.

KCGI, a small, anonymous activist fund formed last July, shot to fame later in the year when it became the second-largest shareholder of two of the group’s affiliate companies, owning 8.03 percent in Hanjin and 10.81 percent in Hanjin Kal.

The activist fund acquired the shares of the group’s companies through its CEO’s eponymous Kang Sung-boo fund. Hanjin has often been accused of poor corporate governance due to the strong influence of its owner family, which first gained notoriety back in 2014 for the “nut rage” incident.

Hanjin Group, valued at 30.3 trillion won ($27.15 billion) with 28 affiliate companies as of May last year, faces a new challenge from the activist fund.

In a recent interview with the JoongAng Ilbo, Kang said he demanded changes from the group.


“I requested improvement in the governance structure of the company,” said Kang. “I’m in a position where I have to repeatedly make such requests.”

The activist fund CEO explained that his role may not be the most welcoming to Hanjin, as the fund looks to raise the group’s profile and value.

“From the company’s perspective, I’m probably a thorn in their side … I have to keep interfering like a mother-in-law,” joked the chief executive.

Kang said his presence in Hanjin is focused on improving the overall state of the company.

“The demands I made to the company are to improve its debt ratio and raise its credit rating that has dropped a lot.”

“Its international credibility has also fallen so I asked the company to improve that as well,” Kang added.

Kang affirmed that Hanjin’s credibility is related to problems from the owner family.

KCGI reported to the Financial Supervisory Service that it had become Hanjin’s second-largest shareholder on Dec. 3. The stake is greater than the 6.97 percent of shares held by Hanjin Chairman Cho Yang-ho and his family. Prior to the December announcement, KCGI bought 9 percent of Hanjin Kal’s shares and added more shares last month to increase its stake in the company to 10.81 percent.

The amount that KCGI spent to acquire Hanjin and Hanjin Kal shares is 284 billion won. The fund reported to the Financial Supervisory Service (FSS) that of the total spent, 264 billion won was capital from the Kang Sung-boo fund, under KCGI, and that 20 billion won was borrowed money using Hanjin Kal shares as collateral.

Despite the fund’s sudden acquisition of Hanjin affiliate shares, Kang denied that the fund is pursuing a hostile takeover to reap quick profit.

“We are an activist fund but we are not trying to conduct a hostile takeover,” said Kang. “Those nearby think we are fighting with the company but that’s not true … We bought the shares from a friendly position.”

The fund CEO said that it is focused on improving the overall state of the company.

“If we were only concerned about short-term progress, we would have told the company to increase dividends and buy their own shares,” explained Kang.

KCGI disclosed in a regulatory filing when it bought Hanjin and Hanjin Kal shares that it intended to take part in the companies’ management, opening up the possibility that it may take an active role in the management appointments.

The CEO is expected to enter a fierce battle with Hanjin chairman Cho Yang-ho and his family in March, when Hanjin and Hanjin Kal hold shareholder meetings.

As both companies’ auditors need to be newly appointed in March, the two parties are likely to battle over who will get the right to access the financial details.

“I can’t say right now in detail how we would like to improve the governance structure,” said Kang. “We did tell the company the specifics.”

The CEO emphasized that the share acquisitions were motivated to place the company in a better position.

“I’m not doing this just for myself,” expressed Kang. “[We] won’t leave after just one or two years of investing. We’re in it for the long run.”

Kang is a familiar face in financial circles, having worked as a securities analyst and specialized in corporate governance structure. The CEO even published a 511-page book back in 2011 on Korea’s corporate governance. Kang is the majority shareholder of KCGI, owning 67 percent of the company.

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