Changhwan Lee, CEO of Align, "Continuing to Hold SM Shares... No Exit Yet"

Align Partners Asset Management (hereinafter Align Partners), which has been engaging in shareholder activities against SM Entertainment (hereinafter SM), denied reports that it had sold all of its shares, stating that it continues to hold SM shares and has not exited.

On the 3rd, Lee Chang-hwan, CEO of Align Partners, stated, "Some media headlines have caused misunderstandings as if Align Partners had sold all its shares and exited (recovered investment funds), contrary to the position previously disclosed externally, so we would like to clarify this.

CEO Lee said, "We have not traded SM shares since October 5, 2022, and the holding remains unchanged at 268,500 shares (1.12%)."

The small stake (10,000 shares, approximately KRW 1.12 billion) held by the parent company Align Holdings, when combined with Align Partners’ shares, amounted to about 3.5% of the total. The shares held by Align Holdings were acquired for investment purposes before the fund was established, and it was explained that there was a need to sell some shares to cover operating expenses.

CEO Lee said, "We could not sell during the ongoing campaign, and after assuming the director position, trading would be practically restricted and administratively cumbersome. Therefore, the sale was made legally without issues between March 21 and 24, after the campaign and dispute had ended and before the director appointment." The selling price was around KRW 111,950, similar to the previous day’s closing price (KRW 112,600).

Regarding the shares held by Align Partners, it was reported that following proposals from securities firms, about 3% fee income relative to the value of the holdings was generated through stock lending for one month on March 14, after the management dispute was resolved.

He emphasized, "It is a common fund management practice to generate income through stock lending, and the fund manager has a duty to manage fund assets in the best interest of investors," adding, "All loans have now been repaid."

Align Partners stated that since October 5, 2022, it has neither acquired nor disposed of SM shares, and as of the end of March and May 2, the holding remains at 268,500 shares (1.12%).

They also said, "We believe that executing the 'SM3.0' strategic plan announced to the media on February 7 will significantly enhance corporate value, and there is no change in our position to remain a friendly shareholder without participating in the tender offer."

Align Holdings is the parent company that owns 100% of Align Partners. The 10,000 SM shares held by Align Holdings were purchased for investment purposes between May and August 2021, before the first fund was established, and this has already been publicly disclosed.

The sale took place over three days from March 21 to March 24, 2023, after SM’s Q4 earnings announcement (February 20) and the resolution of the Kakao-HYBE management dispute (March 12).

At the time of the Kakao tender offer announcement and ongoing process, CEO Lee Chang-hwan chose a legally unproblematic time before his appointment as SM’s non-executive director on March 31 to conduct the sale.

CEO Lee said, "The main reason for selling shares was financial, such as covering operating expenses. Although there was a need to raise funds by selling shares, we could not do so during the activist campaign and were covering operating costs through stock-backed loans."

He added, "Although the Align Holdings stake (10,000 shares) is small, after the director appointment, trading would be practically restricted and cause various administrative inconveniences, so we wanted to settle it before the appointment if possible."

Regarding SM stock lending transactions, he explained, "On March 14, when the lending occurred, the agreement between HYBE and Kakao was officially announced on March 12, ending the management dispute and shareholder meeting vote battle, and the stock price had adjusted downward accordingly on March 13 and 14."

CEO Lee said, "After our public announcement that Align Partners would not participate in the Kakao tender offer and would remain a friendly shareholder of SM, several securities firms contacted us offering fees if we put our shares into their stock lending pools." He added, "We lent shares for one month to improve returns for investors."

The stock lending involved lending shares to securities firms’ lending pools; Align Partners continues to hold the shares, but on the shareholder register, the shares appear under the name of the borrower from the securities firms. The identity of the borrower is unknown.

CEO Lee stated, "The income generated through stock lending was about 3.1% of the value of the holdings based on the closing price on March 14, which is significantly lower than the potential profit if we had participated in the tender offer and sold shares at KRW 150,000 per share."

He also mentioned, "It is incorrect to simply annualize the one-month lending period (x12) and claim a 30% return, as such returns cannot be continuously obtained."

Regarding claims that stock lending was involved in short selling or caused stock price declines, he said, "We do not know to whom the shares in the securities firms’ lending pools are lent or how they are used. We only lent shares to the securities firms to be placed in their lending pools and are not involved in any other activities."

He added, "As a long-term holder, Align Partners has no reason to drive the stock price down. Remaining a friendly shareholder without participating in the Kakao tender offer or exiting, while temporarily lending shares to improve returns, is consistent with Align Partners’ existing position of holding SM shares long-term and betting on stock price appreciation."

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