Singapore:
- SK Discovery’s tender supply value may be very low, representing a 74% low cost to internet belongings.
- SK Chemicals has nonetheless not adequately compensated its shareholders for the split-off of SK Bioscience. The Korean regulator has recognised how split-offs can harm the pursuits of traders.
- Only a wholesale restructuring can restore the market’s belief in SK Chemicals.
Metrica Partners Pte. Ltd. manages numerous funding funds that personal shares in SK Chemicals Co., Ltd. (code: 285130).
SK Chemicals is at the moment topic to a young supply by SK Discovery Co., Ltd. (code: 006120). SK Discovery is providing to purchase 5.22% of SK Chemicals’ shares for ₩108,800 per share.
Metrica believes the supply value to be wholly insufficient and it doesn’t intend to tender any of its funds’ shares.
The supply value represents a 74% low cost to the worth of SK Chemicals’ internet belongings of ₩425,042 per share, in accordance to the latest report posted on the corporate’s web site (adjusted for subsequent share value actions).
Why does SK Discovery consider it will possibly purchase shares so cheaply? In Metrica’s view, it’s as a result of the market has misplaced belief in SK Chemicals’ company governance.
In 2021, SK Chemicals performed a split-off and IPO of its fast-growing subsidiary SK Bioscience, with out giving shareholders any proper to subscribe to the deal. After the IPO, SK Bioscience shares rose 5 instances in six months, whereas SK Chemicals shares fell. It created a large switch of wealth from SK Chemicals shareholders to SK Bioscience IPO traders, attracting unfavourable commentary in the native media (“Why do Korean-style corporate split-offs wreak havoc on minor shareholders?” – Korea Times, 10 February 2022, https://www.koreatimes.co.kr/www/biz/2022/04/175_323668.html).
Other superior economies defend legacy firm shareholders in a split-off by means of IPO participatory rights or different compensation. The FSC has now recognised this, and final week it introduced guidelines to convey Korea nearer to world greatest practices (“Measures to Improve Protections for General Shareholders in IPO of Split off Subsidiary” – Financial Services Commission, 5 September 2022, https://www.fsc.go.kr/eng/pr010101/78448).
This gained’t assist the long-suffering shareholders of SK Chemicals. A wholesale restructuring is required to restore the market’s belief and shrink the low cost.
One yr in the past, Metrica wrote to the corporate (reproduced on Metrica’s web site at https://sk-shareholders.com/2021/09/07/letter-to-the-board), urging it to promote a few of its 68.3% stake in SK Bioscience and return the proceeds to shareholders by way of money or a major share buyback. At the time, the SK Bioscience share value was ₩335,000.
While SK Chemicals responded with a number of value-enhancing initiatives, together with a brand new dividend coverage, these have been all very restricted in scale, and it’s no shock that they’ve failed to scale back the low cost meaningfully. Meanwhile, SK Bioscience’s shares have fallen to ₩107,500. In different phrases, SK Chemicals has left some huge cash on the desk by not implementing Metrica’s options in a well timed method.
Even so, it’s not too late. A restructuring may nonetheless unlock a big proportion of the 305% upside between SK Chemicals’ present share value and its internet asset worth. The majority of this may movement to Korean traders, who personal 81% of the corporate.
Metrica will proceed to press for higher governance at SK Chemicals till the corporate has resolved this subject. If the corporate does nothing, it’s doubtless that Metrica and different like-minded shareholders will purchase extra SK Chemicals shares to give you the chance to power by means of the required measures. Metrica has already elevated its funds’ holdings of SK Chemicals shares by virtually seven instances (as of 31 August; consists of positions held by means of complete return swaps) for the reason that launch of the primary open letter.
Ultimately, Metrica nonetheless believes that the most effective end result for all stakeholders can be for the present administrators and administration, who know the corporate higher than anybody else, to tackle these points themselves. This would resolve the low cost whereas dramatically bettering the market’s notion of SK Chemicals and the entire SK Group.
About Metrica Partners Pte. Ltd.:
Metrica Partners Pte. Ltd. is a Singapore-based funding administration firm, based in 2016 by Damian L. Edwards and David Mulvenna.
As an unbiased agency, free from the conflicts of curiosity typically discovered at different funding managers, Metrica usually workouts its proper to makes proposals to its portfolio corporations. These proposals take the type of concrete, actionable steps geared toward bettering company governance and boosting shareholder worth. Metrica’s suggestions for SK Chemicals are meant to produce larger returns for all traders, together with pension funds that handle Korean retirement belongings.
More info is out there at https://metricapartners.com and https://sk-shareholders.com.
View supply model on businesswire.com: https://www.businesswire.com/news/home/20220912005466/en/
