Park Chul Whan, Senior Executive and Largest Individual Shareholder of Kumho Petrochemical Issues Comments on ISS Report, “ISS Recommendation is Inadequate and Lacks Understanding of the Governance Risk Posed by the Current Management and the Board of Directors”

   2021-03-15 15:03

Park Chul Whan says, "It is hard to trust the current board of directors’ commitment for governance improvement," and proposes to "hold an open forum" for the company’s better future.

– The agenda proposed by the management is seen to have no substantial impact on the status quo… consisting of inaccurate and misleading details on retirement of treasury shares, dividend payout, and the Kumho Resort acquisition deal.

– It is questionable whether ISS thoroughly reviewed the management’s mid- to long-term growth strategy that has been hastily prepared with deliberately distorted information.

– Park is determined to communicate with all shareholders with regards to the legitimacy and purpose of the shareholder proposal for the pursuit of Kumho Petrochemical’s transformation into a company that leads the future.

HONG KONG, March 16, 2021 /PRNewswire/ — Kumho Petrochemical’s largest individual shareholder and executive, Park Chul Whan, issued a statement today in response to the global proxy advisor International Supervisory Service (ISS) report issued on March 12 and disagreed with its recommendations and assessments. He also criticized the growth strategy proposed by the company one-by-one, casting doubt over the current board of directors’ commitment and ability to make substantial changes to improve the corporate governance. In addition, he proposed to hold an open forum for the company’s better future.

Park insisted that ISS has completely disregarded two key factors: inability of the current board to fulfill its duty of oversight to guarantee that corporate and shareholder value remain as the top priorities in its decision making, and the lack of accuracy and validity in the mid- to long-term growth strategy that have been put forward by Kumho Petrochemical just 2 weeks ahead of the annual general meeting of shareholders. He argued that ISS recommendations are inadequate as they fail to catch distorted information and see through the loopholes in the company’s proposal which bring confusions to the shareholders. 

On the other hand, Park agreed with the ISS’ criticisms towards the company’s plan for Kumho Resort acquisition and missing a detailed timeline for treasury shares retirement and sales of non-operating and unrelated assets and subsidiaries, such as Asiana Airlines and Daewoo Engineering & Construction in the company’s proposal. Park said these assessments are in line with what he has been arguing for enhancing corporate and shareholder value of the company.

Regarding the annual general shareholders’ meeting agenda and the growth strategy announced by the company, he added, "The company has provided a makeshift measure in response to my shareholder proposal, further highlighting the company’s weak financial and business strategies along with the board’s reluctance to make sincere improvements." 

In particular, Park Chul Whan criticized the company’s treasury stock retirement plan for missing actual action plans, pointing out the need to come up with a more detailed plan for all shareholders. ISS also criticized the company’s treasury stocks, saying, "The current management acknowledged (for the first time in public) the problem of holding excessive level of treasury stock and said it is ready to consider using or retiring them, but it did not specify the details."

Regarding the company’s announcement to keep the dividend payout ratio at around 20%, Park indicated that the calculation was based on separate financial statements, not a consolidated financial statement. He added that, "Under a proper calculation, the company is actually lowering the dividend payout ratio, and this is tricking shareholders without in-depth knowledge in accounting." Park criticized that the company’s dividend ratio is well below the industry standard and for it to attempt to exclude earnings of subsidiaries such as Kumho P&B Chemicals in dividend calculation, is a dishonest practice.

Concerning the Kumho Resort acquisition, Park argued that the company must present a reasonable ground of how Kumho Resort’s valuation is assessed at KRW 790 billion as claimed by the company and urged to disclose feasibility study for transparent communication. In its assessments, ISS also questioned the reasons behind the acquisition, pointing out that Kumho Resort is a leveraged company, has continuously recorded losses, and lacks relevance to Kumho Petrochemical’s main business.

Park Chul Whan rebuked the company by stating that, "Reflecting on the company’s mid- to long-term growth strategy based on misleading information and intentional distortion of financial data, there is doubt whether the management had any sincere concern for improving corporate and shareholder value," and explained that in order to prevent shareholders from being misled, he immediately sent a rebuttal letter in response to the ISS recommendations.

Park’s rebuttal letter to ISS laid out urgent measures to raise corporate and shareholder value, including △ retirement of all treasury shares, △ offering of industry standard dividend payout, △ raising investment capital through IPOs of subsidiaries and dispose of its non-operating assets, △ and upgrading the board of directors with truly independent and qualified candidates.

"For Kumho Petrochemical’s transformation into a company that leads the future, I will continue to communicate with all shareholders of the needs and purpose of my shareholder proposal and to strive to return greater value to all fellow shareholders," Park said. "To this end, I propose to hold an open forum dedicated to enhancing corporate and shareholder value, to open up transparent discussions on all agenda items with the current management."

[Reference] Comparison of the major agendas of the shareholder proposal

Park Chul Whan’s Shareholder Proposal 
(Global Standard)

Kumho Petrochemical’s Response

(Arbitrary Analysis)

1.   Validity of the dividend payout

— Raise payout ratio to above KOSPI average of
40% or to the industry peer average of 50%
to enhance shareholder value

— Specifically, pay 50% of surplus cash flows in
dividends, while setting aside capital for
investment in the company’s future growth

— KRW 3.2 trillion worth of investment capacity
can be secured within the next 5 years by
adding liquidity through IPOs of subsidiaries
and disposal of non-operating assets

— Maintain payout ratio at around 20%, but
based on separate financial statements, not
on consolidated financial statements 

— The plan is to exclude the earnings from
Kumho Petrochemical’s subsidiaries

— Under a proper calculation, the company is
actually lowering the dividend payout ratio,
and this is tricking shareholders without in-
depth knowledge in accounting

2.   Validity of the Kumho Resort acquisition deal

— Kumho Resort brings no synergy to the
company’s core business, and it continuously
has recorded operating losses, and has a high
debt ratio of 400%

— Has no business relevance to Kumho
Petrochemical and can be characterized as
typical empire-building of the management
focusing on investments related to personal
influence and reputation expansion

— The management claims that profitability
can be restored post-COVID-19, however, its
claim is groundless as it does not consider
Kumho Resort’s competitiveness. Even
before COVID-19, Kumho Resort recorded
KRW 75.7 billion in sales, KRW 3.7 billion in
operating loss, and a net loss of KRW 32.5
billion in 2019.

— Business feasibility analysis, including the
grounds for Kumho Resort’s appraisal value
of KRW 790 billion, reasonable estimates of
future performance projection and vision,
should be transparently shared with

3.  Use of resources (treasury stock)

— Retirement of treasury shares to raise
shareholder value

— Shareholding ratio can be raised for all
existing shareholders including minority

— Retiring treasury shares, which account for
18.4% of all outstanding shares, can
increase Earnings Per Share (EPS) by 22.5%

— The management only mentioned that it
plans to retire or actively use treasury stocks
as strategic financial resource for future
investments when it meets appropriate
value. The management should show real
commitment by providing a specific timeline
and plan.

4.  Governance of the Board of directors (official role vs actual role)

— Independent authority to monitor and
challenge the management

— Capable of providing independent advice to
the board of directors with on-the-ground
expertise needed for transformation

— Possession of global experience and e
xpertise in areas such as global M&A,
digital transformation, and ESG management

— It is questionable whether the nominees
recommended by the current board of
directors will be able to effectively monitor
and challenge the management.


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