Sovereign has become the largest shareholder in SK Corporation in order to catalyse the creation of shareholder value through the adoption of international standards of corporate governance and transparency.
Crest Securities Limited recently became the single largest shareholder in SK Corporation ("SKC"). Crest Securities Limited is a wholly owned subsidiary of Sovereign Asset Management Limited ("Sovereign") based in Monaco. Sovereign is a long-term investor without any affiliation to SKC's existing shareholders or management. It is making this statement in response to media interest regarding the purpose of the investment in SKC.
Sovereign's Objective - Building Shareholder Value
Sovereign believes SKC is an undervalued company which is trading at a discount because of recent problems at SK Global and a track record of poor returns from its diverse investments.
According to a statement posted on the company's web site on March 13th 2003, SKC's management have made a commitment to "establish a world-class corporate governance and transparent management led by the board of directors in order to maximize shareholder's value". As SKC's largest shareholder, Sovereign appreciates the importance of this endeavour.
"Sovereign's objective is to work constructively with SKC management to build shareholder value and transform SKC into a role model for corporate governance in Korean business" said James Fitter, Chief Operating Officer of Sovereign Asset Management.
Bold Reform Is Essential
Resolving the current difficulties facing SKC will require a bold reform plan which can command the respect and support of all shareholders, as well as creditors, employees and regulatory authorities.
Sovereign seeks to work constructively with SKC management to develop a plan that achieves both real and immediate corporate governance reform as well as a refocused business plan that can achieve higher returns from SKC's excellent asset base. Sovereign has significant experience in both corporate governance and optimising capital allocation which it believes can be helpful to SKC in significantly enhancing the value of the company.
Credibility Can Only Be Restored By Concrete Actions
All stakeholders in SKC including shareholders, employees and creditors are waiting for actions which demonstrate the company's commitment to reform. It is clear that market confidence will not be restored until steps are taken that clearly show that SKC is breaking with past practices and managing the company professionally for the benefit of all shareholders.
Given the recent events surrounding SK Global, and the scrutiny of Chaebol practices by the government, Sovereign expects that the future of SKC will be determined by all shareholders acting in a more transparent and equitable manner.
Sovereign is interested in principles, not personalities. The board of SKC must realise that only a board which represents the interests of all shareholders and adhering to international standards of corporate governance will be a positive force for change in Korean business.
Corporate Governance Is A Key Issue for Korean Business
It has been widely reported in the international press that unethical and discriminatory business practices continue to be a problem in the boardrooms of many large Korean companies, despite the excellent progress made toward greater transparency since 1998. The real cost of these concerns is shown in the "Korean discount" which the market applies to Korean listed companies. The SK Global scandal has only served to heighten these concerns.
The initiative by the Korean government to address the root cause of the structural problems in modern-day Korea is a bold and enlightened step, which Sovereign strongly supports. Sovereign already has a long track record of patiently promoting good business ethics through major investments in other countries which have faced similar reform challenges to those facing Korea today. Indeed, a key component of Sovereign's corporate mission is to support exactly this type of reform.
SK Corporation Is a Test Case for Reform
South Korea's financial markets are now facing their most severe test since the 1998 Asian crisis. The SK Global scandal has aggravated the liquidity problems in the credit card industry, and significantly undermined South Korea's image as a developed Asian financial centre and destination for investment capital. Paradoxically, this situation has arisen precisely because of the Korean government's willingness to confront the shortcomings of the existing order, in order to catalyse a change for the better. The markets will reward this bold leadership as long as the government's commitment to reform does not waiver.
Sovereign's investment in SKC is intended to be a catalyst in turning a corporate tragedy into a triumph for corporate governance in Korea. This is exactly the type of situation where Sovereign is able to offer significant value, by working with SKC management to pursue the highest standards of corporate governance and transparency.
"The successful reform of SKC would send a clear signal, to both the international and domestic business communities, that Korea is on path to joining first world economies. This would start the revaluation of all Korean listed companies" said James Fitter, Chief Operating Officer of Sovereign Asset Management.
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