Since 1997 SKAGEN has proactively engaged with Korean companies on corporate governance issues, notably to improve Board composition and minority shareholder protection at our holdings, activity which has created significant value for unitholders over the years.
Despite generating strong cash flows and earnings, Korean companies have persistently traded below global peers, with weak corporate governance often cited as the key reason for the ‘Korea discount’’. This weakness is largely due to the power exerted by a small number of controlling family shareholders and manifests in a lack of voting rights, related party transactions and poor dividend payouts.
The Korea discount is particularly wide in the country’s banking sector where companies often trade at steep discounts to book value and on low earnings multiples as a result of poor capital allocation. Despite generating similar return on equity to overseas peers, Korean banks have historically been much less generous in returning profits to shareholders.
SKAGEN has recently increased engagement with our Korean bank holdings to improve shareholder returns. In January we wrote to the Board of DGB Financial Group (owned by SKAGEN Kon-Tiki and SKAGEN Focus) to express our support for the proposals of Align Partners, an activist investor which has campaigned for better governance in Korean banks since the start of 2023. Align Partners has written to seven of the country’s lenders demanding reduced asset growth in favour of returning capital to shareholders through increased dividends and share buybacks.
The activist campaign has recently caught the attention of Korean press, politicians and the broader public. This momentum has lifted the KSE Finance Index around 15% in the last week, including gains of 12% for DGB Financial Group and 23% for KB Financial, another Korean Bank owned by the same SKAGEN funds.
It has also lifted the broader KOSPI Index, which is up 5% since the end of January and further momentum could come from elections later in the year as politicians seek to influence private investors who have grown to represent 30% of Korea’s voting population. The government and regulators are pushing for better corporate governance in order to raise valuations and shareholder returns, which should be good news for SKAGEN Kon-Tiki, SKAGEN Focus and SKAGEN Vekst, all of which are overweight Korea and have significant portfolio exposure.
You can hear more about our work to help close the Korean discount at our SKAGEN Kon-Tiki webinar this Wednesday 14 February at 15:00 CET. Lead Portfolio Manager, Fredrik Bjelland will also share his thoughts on the outlook for emerging markets and where he sees opportunities for the fund in 2024. Register to watch the webinar here - if you are not able to watch live, we will send you the recording after the event.