Cha Partners Proposes to Kumho Petrochemical: "Overcome Undervaluation by Canceling Long-Term Held Treasury Shares"

Cha Partners announced on the 4th that it proposes a share buyback cancellation and director appointments, citing the continued undervaluation of Kumho Petrochemical's stock price.

Cha Partners made a shareholder proposal on the 7th of last month for 2024 to establish an independent board function at Kumho Petrochemical and to prevent the use of treasury shares for securing friendly stakes by the controlling family.

Specifically, the proposals include ▲appointment of outside directors to serve as audit committee members ▲amendments to the articles of incorporation related to treasury share cancellation ▲and the cancellation of treasury shares.

Cha Partners recommended Kim Kyung-ho, chairman of the board (audit committee member) of KB Financial Group, as an outside director to serve on Kumho Petrochemical’s audit committee. The goal is to appoint an independent outside director (and auditor) who will represent the interests of general shareholders holding over 80% of Kumho Petrochemical’s shares, thereby preventing and checking management and board actions that harm shareholder value.

Cha Partners explained, "Candidate Kim Kyung-ho has a track record of significantly enhancing shareholder value as an outside director and audit committee chairman at KB Financial Group, Citibank Korea, and Shinhan Investment Corp." They added, "If Kim Kyung-ho is appointed as a separately elected outside director, it is expected that Kumho Petrochemical’s board will greatly contribute to protecting and increasing overall shareholder value."

Additionally, Cha Partners proposed amendments to the articles of incorporation to allow treasury share cancellation not only by board resolution but also by shareholder meeting resolution. In particular, they suggested a phased cancellation of all treasury shares held by Kumho Petrochemical over two years following the amendment. Cha Partners pointed out, "Kumho Petrochemical’s stock price has fallen about 58% from its peak over the past three years as of the end of January last year," and "the total shareholder return (TSR) ranks at the bottom compared to overseas peers and leading domestic chemical companies, indicating a worsening undervaluation problem."

Cha Partners identified the largest cause of undervaluation as Kumho Petrochemical’s large volume of un-cancelled treasury shares. They analyzed, "Treasury shares amounting to 18.4% of issued shares, held for a long time, are feared to be disposed of or sold to third parties to defend the controlling family’s management rights, preventing Kumho Petrochemical from receiving proper market valuation." They added, "Cancelling treasury shares is the most effective and straightforward way to enhance shareholder value and resolve the Korea discount," and "cancelling Kumho Petrochemical’s existing treasury shares can immediately increase shareholder value without additional company expenditure."

Meanwhile, Cha Partners received a proxy from Park Cheol-wan, former executive director and the largest individual shareholder of Kumho Petrochemical (9.1%). Cha Partners holds 0.03% of Kumho Petrochemical’s shares. Park is the eldest son of the late Park Jung-gu, chairman of Kumho Group, and nephew of Park Chan-gu, chairman of Kumho Petrochemical Group.

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