Sovereign Long-Term Foreign
Investor or Green Mailing Raider?
- Its purchase of LG Group shares once again raises the question

Sovereign's massive buying of LG Corp. and LG Electronics shares has become a keen subject as the foreign asset management company is to stage the second round of the SK management versus Sovereign showdown in March.
Sovereign Asset Management confirmed on Feb. 18 it invested about 1 trillion won to acquire a 5 percent stake each in LG Corp., the holding company of LG Group, and its mainstay subsidiary LG Electronics. Unlike the SK case, the Sovereign side made a reconciliatory gesture, saying that it respects LG Corp. and LGE's bid to ensure management transparency, however.
Sovereign's latest attitude represents a striking turnabout from the SK case in which Sovereign demanded governance and management transparency as it massively purchased shares of SK Corp., the virtual holding company of SK Group, to become the largest shareholder of the nation's largest refinery two years ago.
Following Sovereign's move, LG and LGE shares surged to the daily limits in electronic communication network (ECN) trading. But the real motive behind its massive buy of LG group shares remains to be seen, however, stock analysts say.
SK and Sovereign sides have braced for the SK Corp's general shareholders' meeting slated for March, the second showdown in as many as year. Sovereign is expected to flex its muscle to realize its demand for the removal of SK Corp. Chairman Chey Tae-won from management during the coming general shareholders' meeting.
In the meantime, SK Group Chairman Chey has reportedly quickened his pace in the SK side's bid to defend management against Sovereign's offensive. Chey was to leave for the United States in an apparent move to solicit shareholders' support at the general shareholders' meeting. But a SK Group official said on Feb. 17 that Chey would meet business partners to make good on earlier appointments he could not comply with.
SK Corp. side has lured its friendly forces to brace for a showdown against Sovereign. Reports say that SK Corp. side secured a total of 26.75 percent stake in the refinery stock as of the end of last year, taking into account SK C&C's 11.3 percent interest and "white knight" companies like Japanese business partners and Samsung Electronics.
On the other hand, foreign investors siding with Sovereign included Sovereign (14.85 percent stake), Wellington (6.23 percent interest), Capital (CRMC) (4.89 percent), and Templeton (3.96 percent). Foreigners' stockholdings in SK Corp. surged to 54.15 percent as of the end of last year, up more than 10 percentage points than the last year's general shareholders' meeting.
Market analysts say SK Corp. management side's showdown with Sovereign in the coming general shareholders' meeting is not in disfavor of SK side as foreign investors have given higher marks to SK Corp.'s business performances and improvement of governance.
Major companies of SK Group have also seen their credit ratings return to the levels recorded before the SK Global accounting scandal. In particular, SK Corp. witnessed its credit rating of its corporate bounds decline from AA- at the end of 2002 to A+, but come back to the previous level as of June last year. The credit rating of its CPs declined one notch from A1 to 12+, but came back to A1 at the end of last year.
Last November, Sovereign ran the gauntlet against the management SK Corp., as the former demanded an extraordinary session aimed at discussing the qualification of directors sitting on the board of directors. As SK Corp. turned down the offer, the Sovereign side took the case to the court as the latter filed a lawsuit requesting the permission for convening the extraordinary session. A few days later, a court rejected it.
Sovereign side has taken a low- profile since it suffered a setback in its face-off with SK Corp. management during last March's genera; shareholders' meeting despite its strenuous efforts to muster support from minority shareholders, particularly foreign investors. But Sovereign side's latest move was construed as a prelude of the second round of fighting; Sovereign side would stage this during this year's shareholders' general meeting. The latest development, coming about seven months since Sovereign's defeat to SK Management last March, has renewed a myriad of speculation on what ulterior motive the foreign fund has in reality, but also has sounded an alarming bell against Korea blue-chip corporations whose shareholdings are dominated by foreign investors.
The brawl over the management of SK Corp. came to a head when Sovereign purchased a 14.99 percent interest in the nation's largest oil refinery through its subsidiary Crest Securities Ltd. SK Corp. share prices stood at 9,300 won per share at the time of Sovereign's massive purchase, but its latest demand for convening at an extraordinary shareholders' meeting has recently pushed through the record-high 60,000 won level, indicating a whopping five-fold share price hike. It means that Sovereign gets rich-quick by reaping more than 1 trillion won in unrealized profits through the massive purchase of the SK Corp. stock.
Sovereign has repeatedly demanded for the transparency of management by having disputed SK Corp.'s decisions, including bailing out SK Group's affiliates, SK Networks, formerly known as SK Global and SK Shipping. SK Global was implicated in an accounting scandal.
Things are unlikely to turn favorable for Sovereign at this time, however. Sovereign side's cause of improved corporate governance would no longer win over the hearts of many minority shareholders, experts predict. In particular, the People's Solidarity for Participatory Democracy, which has so far favorably responded to Sovereign side's move, is now increasingly turning negative. Prof. Jang Ha-sung, of Korea University, once reacted favorably, saying that Sovereign had finished up in less than one year the work that the Korean government could not do in several years, but the professor's attitude is apparently cold-shouldering the foreign fund, saying that it lacks justification this time.
What's representing a striking difference between the past and now is the rising support of "white knights" that have come to the aid of SK Corp. management. Large corporations may consider they are in the same boat, according to industrial analysts. Samsung Electronics Co. bought an additional 26 billion won and 65.8 won worth of SK shares last Dec. 8 and Dec. 9, respectively, raising its shareholding in the oil refinery to 1.8 million shares or 1.39 percent interest. Samsung has poured 117.4 billion won, accounting for 2.56 percent of its equity value in the benevolent action, even though the company officially denies the role of a white knight of SK Corp. management, saying that its massive purchase of SK Corp. amounts to a form of managing idle money. Earlier last Dec. 2, Pantech & Curitel, the nation's third-largest mobile handset maker, agreed to purchase 459,418 SK Corp. shares, a 0.36 percent interest in the oil refinery.
On the other hand, foreign investors have been net sellers of SK Corp. their combined ownership dropped to 58.74 percent from the all-time high of 61.85 percent, but the Monaco-based investment firm made it public that it will maintain its stake in the oil refinery, 14.9 percent, saying that a lack of commitment to governance touched off foreign investors to dump their SK Corp. shares.

SK Group Subsidiaries Recoup Setbacks in Credit Ratings

Major companies of SK Group have witnessed their credit ratings return to the levels recorded before the SK Global crisis, the group said.
The group said on Jan. 27 that a survey of the credit ratings on corporate bonds and commercial papers (CPs), issued by its subsidiaries, showed that most affiliates saw their credit ratings return to the levels seen prior to the revelation of the fraudulent booking of SK Global, the predecessor of SK Networks.
SK Corp. saw its credit rating of its corporate bonds decline from AA- at the end of 2002 to A+, but come back to the previous level as of June last year. The credit rating of its CPs edged down one notch from A1 to A2+, but returned to A1 at the end of last year.
SK Chemical and SKC had credit ratings of their corporate bonds dropped from the "stable outlook" BBB+ to the "negative outlook" at the end of 2002, but are now coming back to the pre-crisis levels.
SK Networks' credit ratings plummeted from the A level to the C level following the effects of its financial statement fraud, but climbed up eight notches to BB+.
Moody's also lowered the credit rating of SK Corp. from the "negative outlook" Ba2, citing possible side-effects of the SK Global scandal, but raised its rating to a "stable outlook" last year. Other international credit agencies followed suit.
SK Group officials said that an improvement in their credit ratings was attributable to the market's heightened trust stemming from improved governance and the payoff from financial and business restructuring. The group wide debt ratio dropped from 190 percent at the end of 2003 to 140 percent at the end of last year, they added.
Meanwhile, SK Corp. became the first company in the refinery and chemical industries to surpass the 1 trillion won mark in net income last year.
SK Corp. president Shin Heon-cheol announced during an IR session in Yeouidou, Seoul, that his company posted 17,399.7 billion won in sales and 1,616.3 billion won in operating profit in 2004. The figures represent 26 percent and 141 percent on a year-on-year surge, respectively.
Net profit for the year 2004 is projected to soar to 1,644.8 billion won in 2004 more than 100 times the 12.5 billion won profit in 2003, the highest feat the company achieved since its founding. SK Corp. was being the first among refinery and chemical companies to top the 1 trillion won mark in net profit.
In a related development, the nation's top oil refiner on Jan 27 announced a record profit for the fourth quarter as fuel demand from China climbed and prices of gasoline and other products surpassed crude oil hikes.
The company posted its net profit rise to 612 billion won in the October-December period, compared with a fourth-quarter loss of 67.2 billion won in 2003. Operating profits surged 49 percent to 452.1 billion won and sales shot up 36 percent to 4.9 trillion won.
SK Corp. has posted the performances that we had expected earlier, according to an analyst with a Seoul-based securities company. The company's decision on the annual dividend of 1,800 won per share was somewhat unsatisfactory, he said.
SK Corp. said earnings also increased partly because it did not book losses from affiliates as it did in the fourth quarter of 2003. Bailouts of its trading arm SK Corp. Networks Co., formerly known as SK Corp. Global Co., and SK Corp. Shipping cost 267 billion won.
The oil refiner benefited greatly from the brisk energy demand worldwide. Exports grew 65 percent from a year earlier, accounting for 45 percent of the total sales compared to 37 percent in 2003.
In particular, exports to China accounted for 44 percent of sales in the first nine months of last year from 26 percent in 2003.
To meet the surging demand for chemicals and fuels in China, the company said it plans to bolster its marketing and distribution. With additional storage terminals to be built on the country's coast, SK plans to double its annual sales to China to $4.5 billion by 2010 from the current $2.3 billion.
Fuel demand from China and Asia's lack of spare refining capacity will help the refiner sustain profit, analysts said.
The region's demand for oil products increased by an average 1.16 million barrels a day last year, outpacing the worldwide capacity growth of 700,000 barrels a day, according to the International Energy Agency.
Despite the stellar quarterly performance, industry analysts predict the refinery's profits could deteriorate in the coming months, citing the negative effect of the strong won on the industry's overall growth potential.
A steep appreciation of the won against the U.S. dollar has increased foreign exchange and converted gains in the short-run. However, it could lead to lost sales and worse profitability in the long run. A strong won makes Korean products more expensive overseas.

SK Corp. to Firm up Overseas Projects

SK Corp., the nation's largest oil refiner, will firm up overseas projects for oil exploration and production this year as part of efforts to achieve its goal of becoming a dominant energy giant producing 100,000 barrels of oil abroad a day by 2010.
If this goal is achieved, the company expects it will meet half of the oil independence target of 10 percent, which the government has set for 2010.
Despite the year-long dispute with its Moncaco-based major shareholder, Sovereign Asset Management, over the company's managerial rights, SK Corp,., the de facto holding company of SK Group, has pushed the overseas oil projects, seeing sizable results in the field in 2004.
"The expansion of oil exploration and production is also aimed at raising the company's global presence in the sector," SK Corp. president Shin Heon-cheol said in his New Year's message.
As of now, the company is engaged in 26 overseas oil exploration and production projects in 11 countries, including Yemen, Egypt, Vietnam and Peru, according to company data.
Last year, the company successfully started the commercial production of natural gas in the Camisea oil field in Peru and the NC-174 block in Libya, in which the company has invested with other partners.
As a result, it has secured some 300 million barrels of oil, about half of Korea's annual oil consumption as of the end of 2004. The company is ranked 30th among 200 oil explorers in U.S. It aims to enter the top 20 by 2010. In addition, daily oil production in overseas oil fields in which SK Corp. holds shares reached 24,000 barrels per day last year.
The company's operating profit in the exploration and production sector is expected to have hit 210 billion won in 2004, outdoing the projection of 158.7 billion won made early last year.
The better-than-expected business growth can also be attributed to last year's high oil prices.
The company said it will pursue oil and gas exploration projects in the Caspian Sea this year and look more toward energy projects in China.
The company set up the Resources and International Division to oversee all overseas businesses from the beginning of this year to further develop lucrative energy exploration and production projects overseas, an official said.
SK Corp. reported its operating profit for last year jumped 141 percent year-on-year to 1,616 billion won from a 26 percent rise in revenue of 17.4 trillion won. The company announced an annual dividend of 1,800 won per share payable to shareholders of record on Dec.30, last year. The announced dividend represents the largest dividend payment in the company's history, company officials said.
Commenting on the results, Chairman and CEO Chey Tae-won said: "SK Corp's 2004 profit is the highest recorded in our 42 year history and it is the first time any energy company in Korea has achieved more than 1 trillion won in profit. This record achievement together with the extensive 141 percent year-on-year rise in earnings has been produced through our continuing efforts to restructure SK into a more profitable, efficient and internationally-focused operation committed to growth for all shareholders."
The chairman continued: "By improving operating performance the company has been able to take advantage of positive environmental factors such as the rise of refining margin and surging demand for all products from China and other export markets."
He said evidence of our ability to positively leverage opportunity is the growth in operating profits during the quarter and the year to date, which grew more than five times faster than revenues. While domestic petroleum products sales fell slightly, strong export demand and the company's effort to improve operations and reduce debt continue. Management believes that given the current industry environment , there are further opportunities for SK Corp. to contribute to shareholder value.

SKT to Enter U.S. Wireless Market

SK Telecom Co. (SKT) has signed agreement with Earthlink Inc., a U.S. Internet service provider, to establish a 420 billion-won ($400 million) joint venture to provide wireless services in the United States.
SKT became the first company in Korea as well as in Asia to enter the U.S. market. SKT said on Jan. 26 that the joint venture, to be called SK-Earthlink aims to begin services in the third quarter of the year with the goal of attracting 1 million subscribers within two years.
Suh Jing-woo, managing director of SKT's New Business Division, told reporters at the SKT head office in Uljiro, downtown Seoul, "SKT has secured a bridgehead in the United States by establishing the joint venture which SKT and Earthlink each will invest $200 million, and the joint venture would reach a break-even point sometime in three to four years after their launch of business".
In the past, SKT has turned only to emerging markets, but now the nation's largest mobile carrier will seek an equilibrium in the portfolio between advanced and developing countries, said Suh, adding that its basic policy of seeking collaboration with local cooperative companies is aimed at minimizing the risk of its foray into overseas markets.
The scope of businesses SKT will enter will be limited only to third-generation ED-DO services based on Code Division Multiple Access (CDMA) technology, a Qualcomm-developed wireless telecom standard, and SK-Earthlink will focus on differentiating services capitalizing on the existing networks, he said. It may be construed as an initial strategy to secure Koreans and students staying in the United States as its subscribers. Suh said its initial investment as a mobile virtual network operator (MVNO) would not be huge if it leases the established networks.
SKT is considering making a joint entry into others areas like cellular phones, software, and hardware along with Korean companies, SKT officials said. SKT said handset exports are projected at $1 billion by 2008 plus expected spill-over effects of exporting portal, platform and applications.
Domestic telecom analysts predict that Earthlink will offer mobile services through U.S. mobile operation Sprint and Varizon and SKT will be a business partner of providing technology.
Meanwhile, SKT announced that it posted 9,703.7 billion won in sales, 2,359.6 billion won in operating profit and 1,494.9 billion won in net profit in 2004. The figures mark a 2 percent year-on-year increase in sales, but indicate a 23 percent year-on-year plunge each in operating profit and net profit. SKT suffered the first full-year slide in profit since 1997.
SKT suffered a setback with its market share dropping from 54.5 percent in 2003 to 51.3 percent as of the end of last year, as starting last year, the nation introduced the number portability system under which mobile subscribers are allowed to switch their mobile carriers without changing their telephone numbers.
Sales in the category of wireless Internet services surged 38 percent year-on-year to 1,823.4 billion won last year, accounting for 20.6 percent of the sales coming from mobile phone services.
SKT said it recorded 2,484.8 billion won in sales in the fourth quarter (October-December) of last year, up 2 percent over the previous quarter and posted 594.4 billion won in operating profit, a 3 percent drop from the previous quarter.
SKT president Kim Shin-bae said the wireless Internet service sector serves as a growth engine by marking a 5.1 percent rise in sales in the category in the fourth quarter of last year.
Marketing expenses surged 18 percent year-on-year to 1,860.1 billion won last year, taking up a 19.2 percent share in total sales. nw