South Korea tightens disclosure rules

March 27 | Updated: Mar 28 2005, 05:30am hrs
South Korea will require investors who buy more than a 5% stake in a company to disclose the purpose of their investments.

The new rules will take effect on March 29, the Financial Supervisory Service said on Sunday. The regulations seek to clarify whether companies are making straightforward investments or are buying stakes to participate in another companys 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% stake in South Koreas largest oil refiner in April 2003, becoming its biggest overseas investor.

Sovereign alleged Mr Chey was unfit to manage after he was jailed that same year for his involvement in a $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 on March 21 to adopt rules to prevent overseas funds from taking over Korean businesses.

INVESTRACK
Investors should disclose the purpose of their investments
The new rules will take effect on March 29
Government urged to adopt rules to prevent overseas funds from taking over Korean businesses
South Korean laws require companies to disclose their holdings in a local company that exceed 5%
Overseas interest in South Korea has largely focused on financial institutions
The federation said the governments 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 Corps shareholders but will bring transparency to Koreas capital market.

South Korean laws require companies to disclose their holdings in a local company that exceed 5%.

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 didnt 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 ($985 million) invested in the LG Electronics Inc, South Koreas second-largest electronics maker, and LG Group.

James Fitter, Sovereign chief executive, said on February 21 that the stakes were purely for investment purposes and his fund had 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.

Bloomberg