{"id":2206107,"date":"2024-08-09T17:04:03","date_gmt":"2024-08-09T08:04:03","guid":{"rendered":"https:\/\/koreapro.org\/?p=2206107"},"modified":"2024-08-12T18:04:02","modified_gmt":"2024-08-12T09:04:02","slug":"south-korea-confronts-underpriced-stock-market-but-shirks-chaebol-reform","status":"publish","type":"post","link":"https:\/\/koreapro.org\/2024\/08\/south-korea-confronts-underpriced-stock-market-but-shirks-chaebol-reform\/","title":{"rendered":"South Korea confronts underpriced stock market, but shirks chaebol reform"},"content":{"rendered":"
The head of South Korea\u2019s Financial Supervisory Service (FSS) <\/span>convened a meeting<\/span><\/a> with the heads of 23 asset management firms on Thursday to tackle the so-called <\/span>Korea Discount<\/span><\/a>, a phenomenon in which South Korean stocks are undervalued relative to global peers.<\/span><\/p>\n The issue has drawn increasing concern from domestic and international investors, and at the heart of such undervaluations is a deep-rooted problem: the poor corporate governance practices that are especially prevalent among the country\u2019s family-controlled conglomerates, known as chaebol.<\/span><\/p>\n The meeting spotlights the government\u2019s recognition of this problem and its impact on market valuations.<\/span><\/p>\n But the approaches discussed at the meeting were symptomatic of an approach that depends on conglomerates\u2019 voluntary participation rather than enforceable reforms, suggesting that the challenge of overcoming the Korea Discount remains steep.<\/span><\/p>\n THE KOREA DISCOUNT<\/b><\/p>\n Chaebol, which includes global businesses such as Samsung Electronics and Hyundai Motor, are notorious for their complex cross-shareholding structures that enable founding family members to wield outsized power.<\/span><\/p>\n Such consolidation of power often takes place at the expense of minority shareholders, and this not only undermines investor confidence but also suppresses the market valuations of South Korean companies, leading to a phenomenon where the KOSPI Index trades at a <\/span>significantly lower price-to-earnings ratio<\/span><\/a> than its global peers.<\/span><\/p>\n A recent example that highlights how governance issues contribute to the Korea Discount is the controversial <\/span>restructuring plan<\/span><\/a> within Doosan Group. The proposed merger between Doosan Bobcat and Doosan Robotics has sparked significant backlash due to the apparent disparity in the two companies\u2019 financial health.\u00a0<\/span><\/p>\n Doosan Bobcat, a <\/span>profitable subsidiary<\/span><\/a> with a solid revenue base, is being merged with Doosan Robotics, a company that recorded an operating loss of about $11.5 million (<\/span>15.8 billion won<\/span><\/a>) last year. Doosan Robotics continued its deficit with an operating loss of $5.8 million (<\/span>7.9 billion won<\/span><\/a>) in the second quarter of this year.<\/span><\/p>\n The <\/span>merger ratio<\/span><\/a>, which calls for 100 shares of Doosan Bobcat to be exchanged for 63 shares of Doosan Robotics, has raised alarm among minority shareholders, who see this as a move that disproportionately benefits controlling shareholders while diluting the value of their own investments.<\/span><\/p>\n This Doosan merger parallels the contentious <\/span>merger<\/span><\/a> of two Samsung affiliates, Cheil Industries and Samsung C&T, in 2015, which consolidated then-Samsung Vice President Lee Jae-yong\u2019s control of the conglomerate at the expense of minority shareholders.<\/span><\/p>\n