Increasing foreign-owned shares in POSCO raises alarm

POSCO Center in Seoul / Yonhap

By Park Jae-hyuk

Concerns are growing over foreign shareholders possibly interfering in POSCO's management, since their shares in the country's leading steelmaker reached almost 60 percent.

As of Monday, foreigners held 50.56 million shares in POSCO, 58 percent of the company's entire listed stocks.

Considering foreign investors held 43.17 million shares in POSCO in June 2016, 49.51 percent of its total listed stocks, the ratio of foreign-owned shares in the steelmaker has increased by nearly 10 percent over the last two years.

By contrast, the National Pension Service (NPS) has continued selling its shares in POSCO this year.

The NPS, the largest shareholder in the Pohang-headquartered company, announced it sold 257,617 shares in the steelmaker in April, following a sale of 200,678 shares in January.

The NPS holds a 10.79 percent stake in POSCO.

Analysts point out the rapid increase of foreign-owned shares can destabilize a company's governance structure, citing U.S. hedge fund Elliott's attacks on Korean conglomerates.

The activist investment management firm, which holds a 1.6 percent stake in Hyundai Motor Group, stopped the automotive group's attempt to reform its governance structure, acting like a protector of minor shareholders' rights.

However, the hedge fund is expected to sell its Hyundai shares right after making the profit it targeted.

“The hedge fund's attack on Hyundai Motor Group's reform plans, which government authorities praised, reminds me of previous tragedies, such as the Sovereign case,” Korea Listed Companies Association President Jung Koo-ryong said in a press conference last month.

Back in 2003, Sovereign Asset Management became the second-largest shareholder in SK, then in 2005 sold off all its SK shares, making over 900 billion won ($814 million) in profit.

POSCO, lacking a particular owner, is vulnerable to foreign investors.

Because the number of foreign-owned shares in POSCO is high enough for foreign shareholders to pass resolutions at shareholder meetings, they may demand excessive dividends or urge the company to make short-term profits, rather than long-term investments.

The pressure would result in inefficiency in the firm's management.

Against this backdrop, listed companies have called for adoption of dual-class stocks and a poison pill to protect their management rights.

A dual-class stock is the issuing of various types of shares by a single company. Shares can differ based on distinct voting rights and dividend payments. A poison pill is a tactic used by public companies to derail hostile takeovers.

“Compared to other countries, Korea's regulations of M&As is unfair to companies trying to protect their management rights,” Jung said.

According to a recent report by JP Morgan, it was found that Asian countries have been facing a growing number of international activist campaigns. Among the 662 activist campaigns last year, Asian nations experienced 106, 24 of which were in Korea.

POSCO, however, said it will be able to properly counteract against foreign investors' hostile interferences in the company's management, because of its competitive advantage in the industry and shareholders friendly to the steelmaker.

“Although Elliott recently meddled with managements of some companies, such interference will hardly take place in our company having relatively better form of governance structure,” a POSCO spokeswoman said.