Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: For decades, South Korea's economy has been dominated by conglomerates
Speaker 2: like Samsung, sk and Hyundai Motor. These business groups are
Speaker 2: run and controlled by some of the wealthiest families in
Speaker 2: the country. They have a specific name in Korean chebo.
Speaker 1: We call them tebar or Tebell family, so it can
Speaker 1: be referring to the business group or the family behind
Speaker 1: this business group.
Speaker 2: Bloomberg reporter Yuk Youang Lee covers South Korea's stock market in.
Speaker 1: Seoul, tebol are really really big part of the South
Speaker 1: Krona economy. According to one estimate, if you combine all
Speaker 1: the turnover of the five biggest chebar that's equal to
Speaker 1: about almost half of South Korea's growth domestic product as
Speaker 1: of twenty twenty two.
Speaker 2: Yuk Young says Chebol's huge contribution to South Korea's GDP
Speaker 2: has in return given them unchallenged power. That's despite the
Speaker 2: long standing criticism that chebols make deals that unfairly benefit
Speaker 2: the founding families at the expense of other shareholders, But
Speaker 2: recently that power is being rattled. In September, a bitter
Speaker 2: takeover battle was launched for control over Korea Zinc, one
Speaker 2: of the biggest chebols in the mining industry.
Speaker 3: Stocks. We're watching a Career Zinc jumping by a record.
Speaker 3: This is after MVK launches a tender offer to buy
Speaker 3: a Career Zinc.
Speaker 2: That follows, the private equity firm MBK Partners, backed by
Speaker 2: Korea Zinc's largest investor, tried to wrestle control of the
Speaker 2: chebol from one of its founding families. The Chebell family
Speaker 2: that runs Korea Zinc responded with a share buy back,
Speaker 2: and eventually regulators got involved. Yukjung says the case is
Speaker 2: sending shock waves across the country.
Speaker 1: I've been covering Korean's stock market for more than ten years,
Speaker 1: and this is really the first time we see individual
Speaker 1: retail investors exerting big political power, and we saw in
Speaker 1: this case of the Korea Think how their anger got
Speaker 1: translated to the regulator's intervention.
Speaker 2: And the stakes of this effort to reign in Chebbels
Speaker 2: may now be higher than ever. Following the events in
Speaker 2: South Korea last week on December third, President Yunsongyol suddenly
Speaker 2: imposed martial law and then withdrew it hours later. The
Speaker 2: act has plunged the country into a political crisis and
Speaker 2: spooked investors.
Speaker 1: Since the martial law declarations, the policymakers are under greater
Speaker 1: pressure to make sure that global money managers and investors
Speaker 1: want to put their money in the South Korean stock market,
Speaker 1: and they have to demonstrate that to one of usters.
Speaker 2: Welcome to The Big Take Asia from Bloomberg News. I'm
Speaker 2: Rebecca Chung Wilkins. Every week we take you inside some
Speaker 2: of the world's biggest and most powerful economies and the markets,
Speaker 2: tycoons and businesses that drive this ever shifting region. Today
Speaker 2: on the show, the Fight against the Powerful Chebbels, How
Speaker 2: a cutthroat power struggle over Korea Zinc is rallying retail
Speaker 2: investors and rattling South Korea's richest families, And what does
Speaker 2: it mean for Korea's one point six trillion dollars stock market.
Speaker 2: The takeover bid for Career Zinc was announced on a Friday,
Speaker 2: right before a big holiday called Chusock, south Korea's Thanksgiving.
Speaker 2: Yu Kong says that day, people were already in a
Speaker 2: holiday mood, ready to travel and gather with families after work,
Speaker 2: but just twenty minutes before the South Korean stock market
Speaker 2: open for trading, there.
Speaker 1: Was this sudden takeover offer by private equity firm called
Speaker 1: MBK Partners. What NBK Partner did is that it teamed
Speaker 1: up with the largest investor in Korea Zinc and they
Speaker 1: launched a tender offer to buy a controlling stake in
Speaker 1: Korea Zinc.
Speaker 2: You can tell us a bit more about Korea Zinc.
Speaker 3: Sure so.
Speaker 1: Korea Zinc, first of all is not really a well
Speaker 1: known outside South Korea, but it's one of the biggest
Speaker 1: producer of refined metals in the world.
Speaker 4: It produces zinc, which is very crucial for the energy
Speaker 4: transition in the world. It was founded by two families
Speaker 4: who fled North Korea, and the current generation of this
Speaker 4: two founder's family have been drifting apart, and now this
Speaker 4: company is run by one of the grandson of the
Speaker 4: two founders, mister chair Yunbaum.
Speaker 2: MBK Partners, which launched the takeover attempt, is a private
Speaker 2: equity firm run by billionaire deal maker Michael Bungju Kim,
Speaker 2: who's known as the godfather of private equity in Asia.
Speaker 1: MBK was founded by this ex Gortman banker who was
Speaker 1: born in Korea and educated in the US, and he
Speaker 1: once wrote this interesting novel about this young banker who
Speaker 1: finds himself tangled in the dailings of South Korea's wealthiest families.
Speaker 1: Now MBK has launched a takeover battle, saying that it
Speaker 1: wants to improve the corporate governance of Korea Zinc.
Speaker 2: So it seems like he's living out his own fictions.
Speaker 1: Yeah, I think you can say that.
Speaker 2: MBK partners teamed up with Young Pung in launching the
Speaker 2: tender offer. Young Pung is controlled by the Chang family,
Speaker 2: the other founding family of Korea Zinc. Before the takeover bid,
Speaker 2: Young Pung was already Korea Zinc's largest shareholder with a
Speaker 2: twenty five point four percent steak in the firm. But
Speaker 2: even so, Young Pung says it has little say in
Speaker 2: how the firm is run. Instead, Career Zinc is controlled
Speaker 2: and run by the che family, even though the CEO
Speaker 2: Che Yumbum owns less than a two percent steak. But
Speaker 2: Yukyung says this kind of management is typical in a
Speaker 2: lot of Chebol companies in South Korea.
Speaker 1: A lot of this Chebel company are publicly traded, so
Speaker 1: the owners of the public companies are actually the shareholders.
Speaker 1: But in South Korea we often call the Chebot family
Speaker 1: as the owners of these publicly traded companies, even though
Speaker 1: Tebo family do not have more than ten percent or
Speaker 1: twenty percent steak.
Speaker 2: In this company, and MBK Partner says this kind of
Speaker 2: management structure of letting Chebbels have the final say even
Speaker 2: though they don't own much of the company was one
Speaker 2: of the main reasons it launched the tender offer alongside
Speaker 2: Young Pun.
Speaker 1: Mbk's argument is that there isn't much independence in the
Speaker 1: board members or the management because mister Chey, even though
Speaker 1: he houlds a minority stake in Korea Zinc, basically the
Speaker 1: side who gets appointed on the Career Zinc's board member seats.
Speaker 1: So that was the one thing that MBKA said they
Speaker 1: wanted to fix. Now all these arguments from MBK has
Speaker 1: been denied by Career Zinc.
Speaker 2: When the bid was launched, shares of Career Zinc surged
Speaker 2: as much as twenty four percent, the most on record. Chay,
Speaker 2: the CEO, responded in a statement calling MBK Partners a
Speaker 2: predatory corporate radar, and he soon counted with a share
Speaker 2: buyback aimed at defending his control of the company.
Speaker 1: What happened in the following month is that we saw
Speaker 1: the series of counter offer to this tender offer and
Speaker 1: another counter offer to tender offer, and no size trying
Speaker 1: to yield their position at all.
Speaker 2: So how did investors react to all of this?
Speaker 1: This was the tipping point when I felt like the
Speaker 1: public sentimus was turning a little sour against mister chair
Speaker 1: when mister Chesside decided to sell new shares in the
Speaker 1: company to raise money for the company. And on that
Speaker 1: day when the shares sale was announced, the Career Zinc
Speaker 1: shares just tanked and it probably took a toll on
Speaker 1: other shareholders.
Speaker 2: On that day, Cree Zinc shares tumbled as much as
Speaker 2: thirty percent that day, wiping some seven billion dollars off
Speaker 2: its value. Investors were upset with the share sale proposal
Speaker 2: because the price offered was at a sharp discount to
Speaker 2: the market price, and they saw it as a move
Speaker 2: that was all about defending Chase control, and Yukyung says
Speaker 2: Chase decision didn't just er Career zincs investors, it also
Speaker 2: hit a nerve with other South Korean investors.
Speaker 1: I remember on the day when that decision was announced,
Speaker 1: a lot of the individual retail investors watching this takeover
Speaker 1: battle on Fowarding were saying, this is why we don't
Speaker 1: invest in the South Korean market. This is why we
Speaker 1: don't invest in tebar because see, the chairman of a
Speaker 1: company is selling new shares to defend his own management
Speaker 1: control at the cost of other shareholders in the Korean zinc.
Speaker 2: The share sale even prompted regulators to step in the
Speaker 2: nation's financial watchdog launch a probe to investigate whether the
Speaker 2: Career Zinc's board intentionally misled investors about the buyback, and
Speaker 2: two weeks later, Career Zinc, facing increasing public scrutiny, pulled
Speaker 2: the share sale and che vowed to step down as
Speaker 2: chairman of the board. He remained CEO as the takeover
Speaker 2: fight continues. In an interview with Bloomberg last month, chair
Speaker 2: admitted that share sale was a mistake.
Speaker 3: We misread the market. It was perhaps a smart move,
Speaker 3: but definitely not the wisest move. It was a tactical
Speaker 3: error on our part. We definitely put the cards before
Speaker 3: the horse, as they say.
Speaker 2: In a statement, Career Zinc says that all measures taken
Speaker 2: were aimed at protecting the nationally important zinc industry and
Speaker 2: improving corporate value for all shareholders. MBK Partners says that
Speaker 2: Chair's unilateral decision making at Career Zinc has hurt its
Speaker 2: corporate value and shareholders significantly. As for who will win
Speaker 2: the battle to control Career Zinc, we're likely to find
Speaker 2: out more about this early next year. As it stands today,
Speaker 2: MBK and Yung Pung hold just under forty percent of
Speaker 2: the stock in Korea Zinc. Chez chares including those of
Speaker 2: his allies, are at roughly thirty five percent after the break.
Speaker 2: What Korea Zinc's bitter fight says about the pressure on
Speaker 2: chebels to change, what it means for the broader economy
Speaker 2: if those efforts succeed, and what if they don't. South
Speaker 2: Korea's chebels, or family run conglomerates, are seen as one
Speaker 2: of the main driving forces behind the country's rapid economic
Speaker 2: growth after the Korean War ended in nineteen fifty three.
Speaker 2: The chebels propelled South Korea to become Asia's fourth largest economy,
Speaker 2: and today Korea's Fair Trade Commission says that there are
Speaker 2: more than eighty chebels in the country more than seventy
Speaker 2: years after the war ended. Some investors field chebels have
Speaker 2: become more of a liability for the Korean stock market
Speaker 2: accountable for something called the Korean discount Turbot family.
Speaker 1: They have gone from being the engine of growth for
Speaker 1: a South Korea's success story to hampering the country's growth.
Speaker 1: When you see South Korean stock markets peers such as
Speaker 1: Taiwan or Japan, they have been enjoying these market rallies,
Speaker 1: but now the Chebot family are holding back South Korea
Speaker 1: from achieving that kind of rally.
Speaker 2: Chebols are criticized for making deals that advance families interests
Speaker 2: rather than prioritizing shareholder value. One of the structures that
Speaker 2: enable them to do this is the complex web of
Speaker 2: crossholding among hundreds of listed and private companies, so it
Speaker 2: can be difficult for everyday investors to figure out who's
Speaker 2: exactly running the company. And on top of all of that,
Speaker 2: the families that control the Chebels don't actually want their
Speaker 2: share prices to go.
Speaker 1: Up because the more expensive to share prices are, the
Speaker 1: more inheritance tax they have to pay, and South Korea
Speaker 1: has one of the highest inheritance tax in the world.
Speaker 2: Criticisms of this Korean discount and the role of Chebels
Speaker 2: isn't new, but Yukjung says one of the reasons the
Speaker 2: tide is turning now is because of the growing clout
Speaker 2: of individual investors. During COVID, the number of retail investors
Speaker 2: in Korea doubled. They now account for about two thirds
Speaker 2: of the market turnover, a powerful force in the market
Speaker 2: and for the first time, an influential voice in elections too,
Speaker 2: And that is part of the reason why the government
Speaker 2: is also joining in on this push to get chebels
Speaker 2: to change.
Speaker 1: Right now, what the financial the leaders are trying to
Speaker 1: do is that they are trying to make those type
Speaker 1: of companies to come up with plans to give more
Speaker 1: money back to shareholders and make sure they do the
Speaker 1: right things for the shareholders, the general shareholders and not
Speaker 1: just the minority few founding families. So their roles what
Speaker 1: they do in the next few years will be really
Speaker 1: crucial to where the South Korest stock market are headed.
Speaker 2: Broader reforms are on the table. The financial regulator is
Speaker 2: reviewing rules to make it easier for shareholders to secure
Speaker 2: fair merger terms, as well as changes to protect shareholders'
Speaker 2: rights when it comes to buying and splitting up companies.
Speaker 2: So these moves made by regulators with what's happened with
Speaker 2: Career Zinc. It's all really a reality check for the Chabels, right.
Speaker 1: That's exactly right. There will be more public resistant and
Speaker 1: there will be more regulatory interventions if they don't play
Speaker 1: with the rules. One of the institutional us and Soul
Speaker 1: he told me that a lot of the teple should
Speaker 1: be getting a message from what's happening in Korea Zinc,
Speaker 1: which is that if you don't really take good care
Speaker 1: of the shareholders, you may be taking this kind of
Speaker 1: an external attack or external takeover attempt from outsiders.
Speaker 4: So the lesson here is that take a good care
Speaker 4: of your shareholders and make them happy.
Speaker 2: These proposed changes come at a crucial time for the
Speaker 2: country's economy. Last week, six hours of martial law and
Speaker 2: a failed impeachment vote against South Korean President Uni sent
Speaker 2: jitters through the market. Korean stocks tumbled and the one
Speaker 2: slumped following the weekends events.
Speaker 1: Ever since we saw President Union declaring and then lifting
Speaker 1: the martial law decree, we're seeing on a daily basis
Speaker 1: of South Krire's top financial and monitor policy makers trying
Speaker 1: to restore confidence in the South Korean economy.
Speaker 4: The Suskrim market.
Speaker 1: So even though we experienced some of the weaknesses in
Speaker 1: the stock market during the first four trading days since
Speaker 1: the martial law, I think the hope is brewing and
Speaker 1: there's even bigger motivations for Suskrim policymakers and lawmakers to
Speaker 1: make sure that the proper reforms go through and the
Speaker 1: stock market find its proper value.
Speaker 2: This is The Big Take Asia from Bloomberg News. I'm
Speaker 2: Rebecca Cheung Wilkins. Listen to our previous episode on South
Speaker 2: Korea's short lived martial law, where we unpack exactly what
Speaker 2: happened on the ground during those six hours and what's
Speaker 2: at stake for the country's future. This episode was produced
Speaker 2: by Naomi Young Young and Jessica bec It was mixed
Speaker 2: by Alex Sigura and fact checked by Young. It was
Speaker 2: edited by Caitlin Kenny and Catherine Knight. Naomi Shavin is
Speaker 2: our senior producer, Elizabeth Ponzo is our senior editor, Nicole
Speaker 2: Beams de Vaux is our executive producer, and Sage Bauman
Speaker 2: is Bloomberg's head of Podcasts. Please follow and review The
Speaker 2: Big Take Asia wherever you listen to podcasts. It really
Speaker 2: helps new listeners find the show, See you next time.