Hanjin Co. Faces Management Rights Dispute... Impact of Revised Commercial Act

HYK1 Fund Proposes Shareholder Initiatives Including 'Corporate Governance Improvement'

On the 27th, shareholders and executives moved inside the building at the 'Hanjin KAL 7th Regular General Meeting of Shareholders' held at the Hanjin Building Main Office in Jung-gu, Seoul. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Yu Je-hoon] A private equity fund, the second largest shareholder of logistics company Hanjin, has begun exercising minority shareholder rights. As the revised Commercial Act, centered on the so-called individual '3% rule,' passed the National Assembly, companies fell into a panic state, saying their concerns had become a reality as the private equity fund immediately exercised shareholder rights.

According to the industry on the 11th, Hanjin Co., Ltd. received a certified letter titled "Shareholder Proposal for Governance Improvement and Enhancement of Shareholder Value" from the HYK1 Fund. HYK1 Fund is the second largest shareholder of Hanjin Co., Ltd., holding 9.79% of the shares, led by Kyungbang, a textile company and one of the oldest companies in Korea, as the largest investor.

HYK1 Fund stated in the shareholder proposal that "Hanjin Co., Ltd., despite its recognition and potential as the second largest logistics company in Korea, has its corporate value significantly undervalued due to a rigid decision-making structure centered on conglomerate-affiliated owners and inefficient financial structure," and added, "If active shareholder monitoring activities and discussions on governance improvement and management innovation between shareholders and management take place, these issues can be sufficiently overcome."

HYK1 Fund also demanded that Hanjin Co., Ltd.'s board of directors ▲appoint outside directors recommended by itself ▲implement electronic voting ▲elect all audit committee members separately ▲impose director qualification restrictions. Amid the ongoing conflict between the parent company Hanjinkal and the private equity fund KCGI, Hanjin Co., Ltd. has also become embroiled in a management rights dispute.

Practically, the possibility of them immediately entering the board is low. This is because the combined shares of the largest shareholder Hanjinkal and its special related parties (27.44%), the employee stock ownership association classified as a friendly force (3.98%), and GS Home Shopping (6.62%) overwhelmingly surpass the shares held by HYK1 Fund. In particular, since HYK1 Fund acquired all shares from Kyungbang last September, and less than six months have passed since securing the shares, exercising shareholder rights is currently not allowed.

However, the industry views that the revised Commercial Act, which passed the National Assembly plenary session on the 9th, could affect this matter. The revised Commercial Act nullifies the six-month shareholding condition for exercising shareholder rights and requires the separate election of directors responsible for general directors and audit committee members. Coincidentally, among the eight current board members of Hanjin Co., Ltd., the term of one outside director serving as an audit committee member expires in March next year, creating a replacement demand.

Additionally, the revised Commercial Act restricts voting rights for shares exceeding 3% of the total issued shares when appointing outside directors as audit committee members in listed companies. In this case, if HYK1 Fund divides its shares into four parts, it can exercise voting rights for all its holdings (9.79%).

On the other hand, Hanjin Co., Ltd.'s voting rights amount to about 6.07%, with Hanjinkal holding 3%, Jeongseok Inha Foundation 3%, and Chairman Cho Won-tae of Hanjin Group holding 0.07%. Although combining the shares of the employee stock ownership association and GS Home Shopping can surpass the voting rights held by HYK1 Fund, the previously significant share gap will be greatly reduced. It now depends on the National Pension Service (3%), other institutional investors, and minority shareholders.

Hanjin Co., Ltd. is taking a cautious stance. A Hanjin Co., Ltd. official stated, "Since we have received the certified letter, the board will review whether to accept it."

The industry expects that scenarios may vary depending on whether supplementary legislation for the revised Commercial Act will be enacted in the future. The business community is requesting a one-year grace period for the enforcement of the revised Commercial Act and other economic three laws to prevent confusion at the forefront of management.

Lee Sang-heon, a researcher at Hi Investment & Securities, said, "Since HYK1 Fund has already secured about 10% of the shares, attempts to enter the board are a natural step, and since the core of management participation is board participation, even if an audit committee member is produced, the impact will be limited," adding, "Whether it materializes immediately may vary depending on whether a grace period for the enforcement of the revised Commercial Act or supplementary legislation is granted."

This content was produced with the assistance of AI translation services.