South Korean hedge fund Must Asset Management, which has delivered an impressive 50% return this year – far outpacing the nation’s sluggish stock market – is spotlighting governance issues at mining conglomerate Young Poong over its handling of shareholder returns, according to a Bloomberg report.
Founder Kim Doo-Yong has criticised what he describes as hypocrisy from Young Poong’s leadership, noting that the miner’s president previously condemned Korea Zinc for conducting a share buyback without cancelling the repurchased shares, yet Young Poong has held onto its own uncancelled treasury shares for over a decade.
Kim’s fund owns more than 2% of Young Poong.
“It was a sad moment that laid bare the ‘Korea Discount,’” Kim said in an interview cited by the report, referring to the persistent undervaluation of South Korean stocks. Last month, Must Asset proposed that Young Poong cancel its treasury shares – equal to 6.62% of its outstanding stock – and take additional steps to enhance its valuation.
Young Poong’s shares trade at less than 0.2x their book value, placing the company among the worst performers in the Kospi Mid Cap Index. This stands in stark contrast to its 25% stake in Korea Zinc, which has soared in value amid a hostile takeover bid for control by Young Poong and private equity firm MBK Partners.
As of last Friday, that stake was worth KRW5.2tn ($3.6bn), more than seven times Young Poong’s own market capitalisation.
Ironically, one of the reasons cited by Young Poong and MBK for their bid to take control of Korea Zinc was to address the latter’s corporate governance issues. Kim argued that for Young Poong to retain credibility, it must address its own governance shortcomings, starting with the cancellation of its treasury shares.
A spokesperson for Young Poong said the company is reviewing various shareholder opinions, including those from Must Asset, but has not reached a decision. On 10 December, the company disclosed in a regulatory filing that it would update investors within a month on matters such as treasury share cancellation or a potential stock split.
Must Asset has a history of shareholder activism, including a successful 2020 campaign to push for reform at Taeyoung Engineering & Construction. The effort led to a profitable exit for the fund after Taeyoung restructured by splitting its stock into a holding company.
This year’s remarkable 50% return for Must Asset stems from strategic investments, including early bets on noodle maker Samyang Foods and financial firm Meritz Financial Group. The firm, which manages assets totalling KRW526bn, attributes its success to in-depth research and disciplined strategy.
While South Korea’s “Corporate Value-Up” initiative has had limited impact on the broader market – evidenced by the Kospi’s 8% decline this year compared to a 16% rise in global equities – Kim remains optimistic, seeing growing momentum for shareholder activism as a catalyst for improving corporate governance and boosting valuations.
