April 19, 2024

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South Korea’s state pension fund said on Feb.2 it had decided to actively exercise its shareholder rights over Hanjin KAL, the holding company of the nation’s No.1 carrier Korean Air.

Hanjin headquarters in Seoul.

The National Pension Service added however, drew the line at Hanjin KAL, saying that it will not be extending the appliance of the stewardship code or active involvement in management of Korean Air.

Hanjin KAL will be the first case in which the NPS’ stewardship code will be applied. The code is a set of guidelines on trustee responsibility that allows the fund operator to intervene in corporate management, aimed to ensure better governance and higher shareholder returns in the companies they invest in, in principle.

The decision was made during a regular meeting of the fund management committee, which is the top decision-making body of the NPS.

It said that it would pursue changes in the articles of incorporation, but decided not to include rights to remove members of the board of directors among the shareholders’ rights.

Industry watchers believe that the so-called “10 percent rule” or the rule on short swing profit affected its decision to refrain from strictly applying its stewardship code to Korean Air.

Under current laws, an entity that participates in management decisions with 10 percent or more shares in the company must disgorge any profits derived from the sequential sale and purchase of that company’s securities within a six-month period.

Currently, the NPS is the second-largest shareholder of Korean Air with a 11.56 percent stake and the third-largest stakeholder of Hanjin Group’s holding company Hanjin KAL with a stake of 7.34 percent.

There are brewing concerns in the financial industry that the NPS’ decision will prompt an abrupt change in mood at the annual shareholders’ meetings in March. The NPS, with 639 trillion won ($560 billion) in assets, holds more than 5 percent stakes in 297 local listed firms, including Samsung Electronics, SK hynix and Hyundai Motor.

The NPS’ decision comes after the stock price of Korean Air and Hanjin KAL dipped several times throughout 2018 amid the power abuse and smuggling controversies concerning family members of group owner Cho Yang-ho.

By Jung Min-kyung/The Korea Herald 
(mkjung@heraldcorp.com)