Irksome hedge funds

The Korea Times

The Korea Times

Opinion

Thu, November 30, 2023 | 23:47

Editorial

Irksome hedge funds

Posted : 2023-06-27 16:40

Updated : 2023-06-27 16:40

Seoul must deal more effectively with activist investors

To appeal or not to appeal?

That Shakespearean question might be the biggest headache for Minister of Justice Han Dong-hoon right now.

Last week, an international tribunal told the government to pay 69 billion won ($53.6 million) to U.S. hedge fund Elliott Management. The total payment, including interest and legal costs, will be about $100 million.

The Permanent Court of Arbitration's verdict ended a years-long dispute over the controversial merger of two Samsung Group affiliates in 2015. Elliott and some other shareholders of Samsung C&T, a builder, opposed the merger with Cheil Industries, a food company. The opponents claimed the deal sharply undervalued Samsung C&T and its investors' interests.

However, Samsung pushed ahead with the deal which was essential for transferring the group's management control from Lee Kun-hee to his son, Jae-yong. The National Pension Service (NPS), which had an 11.2-percent stake compared to Elliott's 7.12 percent, played a decisive role with its swing vote.

Later, the deal stood at the center of a corruption scandal that led to the ouster of former President Park Geun-hye. Park allegedly told officials to "keep an eye on the NPS' exercise of its voting rights" in return for bribes from the younger Lee, who also served jail time. Park and Lee denied the relationship between the deal and the bribe in trials. However, the Supreme Court rejected it, upholding the lower court's ruling.

The arbitration process and its outcome left a bad taste in the mouths of Koreans in more than a few ways.

Of course, paying almost 130 billion won with taxpayer money is a waste. However, even more embarrassing is how the government had come to stand before an international court with a hedge fund. It's not very difficult to cite reasons, such as Korea's unique and outdated family-controlled conglomerates, the collusion between tycoons and politicians, the undue influence of bureaucrats on economic decision-making, and foreign vulture funds ready to capitalize on these systemic weaknesses.

How much longer must the world's 10th-largest economy keep falling into its own trap?

According to a report in this paper, Korea faces five more investor-state dispute settlement cases. Five of the 10 ISDS cases filed against it have been settled. Most famous ― or rather infamous ― among them was the Lone Star case, in which the Korean government was ordered to pay an "additional" 280 billion won to the Texas-based hedge fund, which had already raked no less than 5 trillion won here by acquiring a failed bank and reselling it based on dubious qualifications.

The cumulative claims of the 10 foreign investors totaled 12 trillion won, approaching the 14 trillion won in total university tuition in Korea. The same Korea Times story says eight more would-be claimants have sent letters to establish arbitration cases. That's ridiculous.

When the arbitration court ruled on the Lone Star case last August, the justice minister vowed to appeal, saying there are enough chances to repeal it. This time around, Han and his justice ministry remain mute. It is less because Elliott based its claims on the Korean top court's ruling than because Han was the prosecutor who indicted the former president and the Samsung Group heir directed by then Prosecutor-General Yoon Suk Yeol.

The justice minister must appeal and fight till the end. Appeals may not lead to practical gains, more likely incurring additional interest and legal expenses. Still, Korea must no longer remain an easy target of Wall Street gadflies and their short-term opportunism. The government must make Samsung pay all related expenses. Claiming indemnity and appeal may be two conflicting goals. Still, foreigners will not, and should not care, from whom the money comes.

Seoul must also join forces with Asian and European countries to abolish the ISDS from the FTA deals it signed with key partners, including the U.S. It has long been a toxic clause in this post-neo-liberalistic world prioritizing environment, social, and corporate governance (ESG) values.

Korea must stop outdated practices to cease being a global ATM.