Will NPS wield shareholder rights over Kakao?

National Pension Service (NPS) headquarters in Jeonju, North Jeolla Province / Yonhap

The National Pension Service (NPS) is poised to engage more actively in its investment into Kakao, Korea's major big tech conglomerate.

According to the state-run electronic disclosure system DART, the NPS publicly announced a change to its stated purpose of stock investment from "simple investment" to "general investment" on Wednesday, as it disclosed changes in its holdings of Kakao and Kakao Pay on the same day. The change of the stated purpose to general investment signifies the NPS' determination to take more initiative in exercising its shareholder rights regarding the performance of Kakao and its payment subsidiary company.

An official from the NPS told The Korea Times that it is prohibited to specifically publicly mention its activities regarding its invested companies, but explained that the changed investment purpose allows the national pension fund to perform various actions with Kakao and Kakao Pay related to wielding its shareholder rights.

In Korea, institutional investors such as the NPS are required by the Capital Markets Act to report their ownership purpose, when they hold more than 5 percent of the shares in a listed company, in one of the three categories: simple investment, general investment or management participation.

Simple investment focuses primarily on profit realization, without involving interference in a stock company's management rights. General investment, on the other hand, engages in more active exercise of shareholder rights than simple investment, as it can make shareholder proposals as long as they do not directly affect management rights.

As the NPS chose to classify its investment in Kakao and its mobile payment firm as a general investment on Nov. 1, it can now legally demand privately held discussions with the companies on critical management issues, such as legal concerns and dividends. The NPS can also issue private or public letters, make shareholder proposals, demand inspection of accounting books and request the removal of executives. The national pension fund can also file a shareholder lawsuit.

Kim Beom-su, the founder of Kakao and former chairman of its board of directors, center, speaks with reporters as he appears for questioning at the Financial Supervisory Service (FSS) in Seoul on Oct. 23. Yonhap

The NPS' move comes as public distrust of Kakao and its subsidiaries continues to grow amid a series of revelations about the big tech businesses' potential irregularities.

Kakao Chief Investment Officer (CIO) Bae Jae-hyun was arrested last month on charges of violating the Capital Markets Act, while Kim Beom-su, the founder of Kakao and former chairman of the firm's board of directors, underwent questioning by the financial authorities last month. In addition, allegations have emerged that Kakao Mobility produced fraudulent accounting amounting to 300 billion won.

President Yoon Suk Yeol also criticized Kakao's influence over the taxi industry, on Wednesday.

"Kakao's tyranny over the taxi industry is regarded as highly unethical, even among the negative impacts of a monopoly," President Yoon said, ordering the ministries to come up with measures to address the issue.

Meanwhile, the NPS' stakes in Kakao and Kakao Pay have been reduced to 5.42 percent and 4.45 percent respectively, as of Thursday, falling 0.94 percentage points and 0.57 percentage points from the first half of the year.