LG Chem, POSCO, Kakao face mounting criticism amid stock fall

Regulator plans to step up monitoring on firms' split-off practices

By Lee Min-hyung

Retail investors are crying foul over Korean conglomerates' practice of carving out their key businesses, as this has ended up with a steep stock fall with regards to the mother firms.

Most recently, LG Chem and POSCO have drawn criticism from small investors amid the woe. LG Chem shares are particularly on the decline ahead of the split-off from the battery business.

The stock price of LG Chem reached its peak at around 1 million won ($838) per share in January 2021, but its value dropped to as low as 611,000 won in December, as LG Chem's plan to split off its promising battery business comes closer. The battery maker LG Energy Solution is scheduled to go public on Jan. 27.

According to data from the Korea Exchange, the country's bourse operator, LG Chem was the most shorted stock last week on the main bourse. As short-selling is a trading strategy betting on a possible stock fall at some point in the near future, it reflects investors' expectations that LG Chem shares will continue losing ground ahead of LG Energy Solution's market debut.

Investors' short-selling of LG Chem shares reached 232.6 billion won on Jan. 7, accounting for 32 percent of all the shorted shares on the benchmark KOSPI. The short-selling balance of the company came in at 159 billion won as of the end of 2021, but the figure surged to more than 250 billion won as of Jan. 11.

Steelmaker POSCO also came under fire after announcing its plan to split off its cash-cow steel business. The company is set to confirm the plan to launch the wholly-owned subsidiary of POSCO during a shareholders meeting on Jan. 28.

POSCO shareholders are stepping up their criticism of the management amid fears over falling share prices. While the POSCO management pledged not to list the subsidiary, investors are doubting whether its word will be kept.

"POSCO's decision to launch the subsidiary is frustrating shareholders who believed in the value of the company," a minority shareholder coalition of the company said. "The decision can be reversed any time after its board meeting."

Kakao, the operator of the nation's dominant mobile messenger app, is also embroiled in a scandal after the management of Kakao Pay engaged in a stock sell-off about less than a month after it went public in November, in an apparent move to make quick profits worth 80 billion won.

After the financial subsidiary of Kakao was hit by the morale hazard dispute, Kakao shares plummeted to below 100,000 won per share. The firm's stock price surged to over 170,000 won in June on an optimistic outlook due to its pandemic growth, but shares of Kakao as well as its affiliates ― such as Kakao Pay and KakaoBank ― have been on a sharp decline after the controversy erupted.

Kakao Pay was split off from Kakao back in 2017, and the financial arm was listed on the main bourse about four years after it operated its financial business as a separate entity.

With a number of retail investors falling prey to a series of these corporate spinoffs, the Korea Exchange pledged to strengthen its screening process on how to protect shareholders when a company pushes for a listing of its split-off entity.

"It is not desirable for us to regulate the listing of subsidiaries of a certain company, but we are going to step up monitoring of how they can guarantee safety for shareholders after the physical division," Korea Exchange Vice President Song Young-hoon said.

"The listing of a firm's subsidiaries is a very important event for its shareholders," he said. "It leaves much to be desired that most firms have not communicated enough with shareholders over the justification of the spinoff."

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