Will KT raise value under holding firm structure?
Minority shareholders remain skeptical about restructuring plans
Controversy is stirring once again over the possibility of KT, a Korean telecommunications company restructuring as a holding firm and the possible impact of such a transformation on minority shareholders, after a domestic securities analyst published a report on Tuesday about the company.
“Considering the likelihood of KT CEO Ku Hyeon-mo serving another term, it seems the company plans to transform into a holding firm in 2023 by spinning off its business departments,” Hana Financial Investment analyst Kim Hong-sik said in the report. “Some investors cited the case of LG Chem as a reason for their concern about KT’s spin-off, but I anticipate a completely different result.”
Kim expected the probable spinoff to generate a great deal of profit for KT’s minority shareholders and raise the company’s market cap, citing its lack of valuable subsidiaries that could cause an outflow of capital from the parent. He also saw that chances are slim for the listing of KT’s wireless network business, even after the spin-off.
“If the company reorganizes its business departments through a spin-off and measures their growth potential and profitability, it will be a great help to raising its enterprise value,” he said.
Minority shareholders, however, expressed skepticism about his optimistic outlook.
“His report did not ensure that KT will not list its subsidiaries (after its transformation into a holding company),” one of the minority shareholders wrote online.
In addition, it is still unclear whether KT will be able to overcome a potential backlash from the union and civic groups, when pushing ahead with the incumbent CEO’s reappointment and the spin-off that could cause a workforce reduction, although the analyst said it has become easier for the company to reform its governance structure at this moment, unlike the early stage of the Moon Jae-in administration, when it had to focus more on job creation.
Tightening financial regulation is viewed as another obstacle to the potential transformation of KT into a holding company. According to the Financial Services Commission (FSC), companies trying to spin off their core business departments as subsidiaries in order to go public, should now come up with policies to protect their shareholders or should explain the lack of such policies.
“We revised the guidelines for corporate governance reports, in response to growing calls to protect the rights of shareholders, when listed companies transform their ownership structures,” the FSC said in a press release.
KT has already made an apparent attempt to avoid public criticism at spinning off core businesses. Last month, it decided to establish KT Cloud as a new entity, instead of spinning off its cloud and internet data center businesses.
Its spokesperson also said that the company has never mentioned the possibility of transforming into a holding firm. In addition, its CEO told reporters during the Mobile World Congress 2022 event in Barcelona on March 1 that it is inappropriate at this moment to talk about his intention to serve another term.
Since KT was privatized in 2002, there have been continuous rumors that it will transform into a holding company.
When KT announced the establishment of three new subsidiaries in charge of media content, satellite and real estate businesses in 2012, it denied a report that it had organized a taskforce to pursue its transformation into a holding company. In November 2020, the Hana Financial Investment analyst also raised the possibility of KT launching a holding company by spinning of its wired communication business.