Global investors push South Korea's chaebols to speed up reforms

Global investors are pressing South Korea's biggest conglomerates to accelerate corporate governance reforms, warning that resistance from major chaebol affiliates could undermine efforts to eliminate the country's so-called Korea Discount, Reuters reported.

Despite a 35% rally this year, South Korean equities remain among the world's cheapest. The KOSPI trades at a forward price-to-earnings ratio of about 3.85 times, compared with 17.64 times for the MSCI World index. Around 70% of KOSPI-listed companies trade at or below book value, Reuters reported, citing LSEG data.

Samsung Electronics highlights the valuation gap. Despite reporting record quarterly operating profit in the third quarter, it trades at 1.87 times book value, compared with 7.8 times for Micron and 29 times for Nvidia.


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Reuters reported that investors are concerned that uneven progress on reforms could weaken President Lee Jae Myung's efforts to attract overseas capital. While banks and financial companies have embraced shareholder-friendly measures, large conglomerate affiliates have been more resistant.

Samsung has faced particular pressure over its shareholder returns. According to Reuters, board chairman Shin Je-yoon recently met global investors, including representatives of Capital Group, Artisan and Fidelity, following concerns that the company's proposed returns were insufficient.

Samsung announced a record 30 trillion won ($22.35 billion) dividend in August but deferred a decision on deploying another 55 trillion won to 75 trillion won earmarked for shareholder returns until January. Rival SK Hynix, meanwhile, announced a $75 billion shareholder return package last month, Reuters reported.

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South Korea's governance reforms include a law requiring companies to cancel treasury shares by September next year. Financial stocks have benefited, with bank shares rising 15.9% and insurers gaining 48% this year, while shipbuilding and machinery stocks have fallen 42% and 30%, respectively.

Activist investors are also stepping up pressure. Reuters reported that Life Asset Management has sought an independent review of Samsung's decision to delay deploying its remaining shareholder return funds. Palliser Capital has called for Samsung and Hyundai Motor to include preferred-share buybacks and cancellations in their return policies.

The growing pressure highlights the challenge facing South Korea in translating governance reforms into concrete corporate action and narrowing its valuation gap with global markets.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)