Sovereign Takes Flight

The global fund Sovereign Asset Management has disappeared from Korea without a trace after walkingaway from a two-year managerial tug-of-war with SK Group with stellar profits.Sovereign sold off its remaining 7.2 percent in LG Electronics and 7.0 percent in LG Corp. inafter-hours trading at the Korea Exchange. Foreign investors bought 8.4 million shares in LGElectronics and 6.7 million shares of LG Corp. while the rest went to local investors.Sovereign sent shock waves through the Korean business sector by claiming the SK stock price wouldstagnate until the corporation's chairman Chey Tae-won resigned after it bought a controlling sharein SK Group in 2003. The fund cast doubt on Chey's qualifications, citing his arrest for insidertrading. But notwithstanding the hostile foreign takeover and evidence of slack ethics at theconglomerate, SK shareholders twice defeated Sovereign's attempts to oust Chey. The fund washed itshands of SK last month but earned a staggering W900 billion (about US$900 million) in the process,making its reclusive owners, the Chandler brothers, New Zealand's richest individuals.The fund stoked anticipation of another squabble by buying up shares in LG Group subsidiaries butleft without making more waves.The Korea Exchange said that Sovereign lost W50.2 billion in its investment in the LG businesses aslosses from LG Electronics outweighed W51.3 billion profits from LG Corp. The tax haven-basedcompany is assumed to have lost a total of W63.7 billion including losses from the exchange rate andtrading tax. That still barely dents its W921 billion net gains from SK in profits and dividends.Investors expecting the struggle over SK management to continue and drive up the share pricescrambled to buy its stocks -- and as a result the price promptly did go up. But in LG's case thegovernance structure proved too solid for such a strategy and the stock price remained steady forsix months.So was it all a ploy? Most securities experts and businesspeople dismiss Sovereign as a speculator,its ostensible commitment to corporate transparency a mere ruse. Kim Gyeong-sin, an executive withHanyang Securities, says the fact that it sold its stake in LG within less than six months "alsoproves that it is not a sincere investor who truly wants to participate in management."But some say that regardless of intent, Sovereign taught the Korean economy a valuable lesson.Without the Sovereign kerfuffle, SK would not have been forced to adopt a more shareholder-centeredmanagement and other companies would not have increased dividends for shareholders.Other SK shareholders, after all, also benefited from the rise in stock price after Sovereign camein. "We must view the Sovereign incident as a positive stimulus for the country's economy,"says ChoiHong, the president of domestic asset management firm Landmark. "Korean funds should also try toearn money by actively investing overseas."(englishnews@chosun.com )http://english.chosun.com/w21data/html/news/200508/200508230027.html