South Korea will require investors who buy more than a 5 percent stake in a company to disclose the purpose of their investments.
The new rules take effect tomorrow, the Financial Supervisory Service said yesterday in a statement. The regulations seek to clarify whether companies are making straightforward investments or are buying stakes to participate in another company's management.
The change comes about two weeks after Dubai-based Sovereign Asset Management Ltd made a second unsuccessful bid to remove SK Corp chairman Chey Tae-won, after buying a 14.9 percent stake in South Korea's largest oil refiner in April 2003, becoming its biggest overseas investor. Sovereign alleged Chey was unfit to manage after he was jailed that same year for his involvement in a US$1.4 billion fraud related to an SK affiliate.
The Federation of Korean Industries, the main lobbying group for corporate South Korea, urged the government last Monday to adopt rules to prevent overseas funds from taking over Korean businesses. The federation said the government's drive to clean up corporate management, after the 1997-98 Asian financial crisis left many South Korean businesses bankrupt, has made corporations vulnerable to overseas raiders.
"We welcome the regulation change," said Lee Chang-hoon, a spokesman at SK Group in Seoul. "It will not only benefit all of SK Corp's shareholders but will bring transparency to Korea's capital market."
South Korean laws require companies to disclose their holdings in a local company that exceed 5 percent. They are required to disclose holdings again should the stake change by a percentage point or more, according to the Korea Stock Exchange.
Companies in the past didn't have to explain the reasons for their investments.
Under the new rules, a company that says its investment is aimed at management participation must explain its reasons and how financing for the investment was obtained.
Sovereign also has more than 1 trillion won (US$985 million) invested in the LG Electronics Inc, South Korea's second-largest electronics maker, and LG Corp.
No management changes
James Fitter, Sovereign's chief executive, said on Feb. 21 that the stakes were purely for investment purposes and his fund has no plans to try to change LG management.
Overseas interest in South Korea has largely focused on financial institutions. Citigroup Inc, Lone Star Funds and Standard Chartered Plc are among the foreign banks that have controlling stakes in South Korean lenders.