The failure of SK Corporation to clarify its intent regarding support for SK Global is needlessly weakening the company's financial condition. On April 22nd Standard & Poor's placed SK Corporation ("SK Corp.") on negative credit-watch stating "a downgrade will be warranted if SK Corp.'s financing is curtailed or if it is forced to increase its exposure to SK group companies to enhance their liquidity."
Last week S&P followed up on their warning by downgrading SK Corporation's debt to junk status and leaving the company on negative credit-watch.
SK Corporation's lack of a public statement is in stark contrast to the commitment from SK Telecom President and Chief Executive, Pyo Moon Soo, who told analysts on a global conference call on May 6th that the company has no plans to extend financial assistance to SK Global. Shareholders of SK Telecom applauded this statement with a strong increase in SK Telecom's share price.
On Friday May 9th local media attributed the following quote to Mr. Noh-Jong Lee: "In order for SK group to survive, SK Global needs to be saved, and regardless of how much the hidden accounting and bad loans amount is, SK Global will eventually be supported." This concept of unconditional support appears to lack any commercial justification and is inconsistent with statements by SK Corp. on their website that it would "not provide any unreasonable support to any SK Group-related companies, including SK Global."
Sovereign Asset Management's investment in SK Corp was strongly influenced by the statement from SK Corp on March 18th which expressed the company's intention to "establish a world-class corporate governance and transparent management led by the board of directors in order to maximize shareholder's value". In light of this, Sovereign had anticipated that its corporate governance experience in other emerging markets would be welcomed by the company.
Sovereign is willing to work with the management of SK Corp. to establish a corporate governance policy that would enhance shareholder value and be fair and equitable to all shareholders. In order to dispel any lingering misapprehensions, and to ensure that SK Corp's decisions are based on commercial principles, it should be reiterated that Sovereign has never attempted a hostile takeover. Sovereign's public statements reflect its desire, as SK Corp's largest shareholder, to ensure that the company acts transparently and in the interests of all shareholders.
However, in light of the resistance from the company, combined with the lack of support from other influential parties, recent developments have called into question Sovereign's ability to meaningfully improve corporate governance at SK Corp.
If the company chooses to continue its past practices, despite its promise to break with the past and adopt greater transparency, then Crest may be obliged to divest all or part of its shareholding. Sovereign wishes to support markets which share a genuine commitment to investor-friendly practices, and internationally accepted standards of corporate governance and transparency.
Sovereign believes that the management and the board of directors of SK Corporation have a duty to clarify their position publicly.
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