South Korea’s Young Poong Corp., which is in a fierce management control dispute with Korea Zinc Inc., has come under attack by an activist fund that urged it to reveal its own measures to boost shareholder value.
Must Asset Management Inc., a Seoul-based hedge fund and investment advisory firm led by fund manager Kim Doo-yong, on Monday sent a proposal to Young Poong, urging it to immediately implement various measures to enhance its enterprise value and improve corporate governance.
Must Asset, which has a 2% stake in Young Poong, first of all, urged the company to entirely retire all its treasury shareholdings and amend its in-house regulations at the upcoming shareholders’ meeting to include a provision prohibiting the retention of treasury shares without retirement.
The asset manager pointed to Young Poong Chief Executive Kang Sung-Doo’s comments in September that criticized Korea Zinc’s treasury share policy. At the time, Kang said that treasury shares “not intended for retirement should not be acquired. This is not in the best interest of shareholders.”
Must Asset said Young Poong has retained 6.62% of its shares as treasury stock for over a decade without retiring them.
“It is a contradictory situation … shedding light on why Young Poong is trading at the lowest valuation relative to its liquidation value in Korea,” the asset manager said in the proposal.
LOWEST VALUATION AMONG LISTED FIRMS
Must Asset argued that Young Poong is currently trading at a market capitalization of about 711 billion won ($507 million), which is only 0.14 times its estimated net asset value of 5 trillion won.
Young Poong’s major assets include a 3.5 trillion won stake in Korea Zinc and 1.0 trillion won in invested properties such as buildings.
“This is among the lowest valuations for listed companies with a market capitalization of over 500 billion won,” it said.
Despite 90% of Young Poong’s net assets consisting of high-quality assets such as its stake in Korea Zinc and buildings in central Seoul, it is effectively trading at the lowest valuation in the Korean stock market, according to Must Asset.
“This unusually poor valuation is believed to stem from the capital market’s deep disappointment in Young Poong’s corporate governance and shareholder policies,” it said.
BONUS ISSUE OR STOCK SPLIT
Must Asset said Young Poong’s limited number of floating shares and low trading volume create “significant inconveniences” for minority shareholders when trading.
“Young Poong’s net asset value per share exceeds 2 million won, meaning that even at a price-book-ratio of 0.5, its market price would exceed 1 million won per share. Currently, there are no companies in the Korean market (with a market capitalization of over 500 billion won) trading at a share price above 1 million won,” it said.
Must Asset requested Young Poong to implement a 1,000% bonus issue or a 10-to-1 stock split to alleviate this issue.
PROPERTY REVALUATION, VALUE-UP DISCLOSURE
The asset management firm also urged Young Poong to revaluate its real estate assets, saying that their true market value hasn’t been properly reflected in the company’s book value.
“Young Poong owns several prime real estate assets, including two major buildings in central Seoul, with a combined market value significantly exceeding the company’s current market capitalization. These properties, however, have not been revalued for an extended period,” it said.
Concerning Young Poong’s management cooperation agreement with MBK Partners, Must Asset requested Young Poong to reveal details of the call option contracts on Korea Zinc shares it signed with the MBK, including the number of shares subject to the option and timing of option exercise.
In the event that the put option is exercised, resulting in a cash inflow equivalent to two to three times the current market cap, Must Asset said it would ask Young Poong to disclose a clear plan for utilizing the cash.
“We strongly suggest that at least 30% of the incoming cash be allocated toward shareholder returns such as cash dividends or share buybacks,” it said. “Announcing such a plan would position Young Poong as a leading example of value-up practices in the Korean capital market.”
YOUNG POONG’S RESPONSE
Must Asset demanded Young Poong provide a sincere response to its proposal by Nov. 29.
In an initial response on Monday, Young Poong said, “We agree with the shareholder’s suggestions for enhancing the company’s value. Since these proposals pertain to the financial structure and management activities of a publicly listed company and could significantly impact the stock price or investors’ decisions, we will strive to incorporate feasible aspects through lawful procedures.”
Shares of Young Poong closed up 10.9% at 428,000 won on Monday, outperforming the broader benchmark Kospi index’s 1.3% rise.
Young Poong, the largest shareholder of Korea Zinc, the world’s largest lead and zinc smelter, joined hands with MBK Partners, a private equity firm focused on Northeast Asia, to purchase more Korea Zinc shares to acquire a controlling stake in the company – a tender offer that began Sept. 13.
In its defense against the bid, Korea Zinc Chairman Choi Yun-birm has partnered with US private equity firm Bain Capital.
By Jong-Kwan Park
pjk@hankyung.com
In-Soo Nam edited this article.
