Paul Singer, founder and president of Elliott Management Corp., speaks during the Bloomberg Invest Summit in New York, U.S., on Wednesday, June 7, 2017.
Misha Friedman/Bloomberg
Let’s add Barbara Streisand to the reasons why South Korea punches below its weight in global financial circles.
The reference here is to a digital-era phenomenon where attempts to challenge or remove information can cause the news to go bigger and wider. In the case of the beloved singer, efforts to stop the circulation of photos of Streisand’s house backfired. The photos went viral instead.
Korea’s attempts to cover for Samsung Electronics in its case against U.S. hedge fund Elliott Investment Management risks a “Streisand effect” that Asia’s No. 4 economy can hardly afford. And just days after index company MSCI rejected—once again—Seoul’s request to upgrade Korea to developed-market status, a step that would pull vastly more global capital into Seoul shares.
The misstep in question is the Korean government challenging a recent arbitration ruling in favor of Elliott.
The case involves the 2015 internal merger of two Samsung affiliates. Last month, the Permanent Court of Arbitration in the Hague sided with Elliott’s claim that Korea’s National Pension Service okaying the $8 billion transaction involving Samsung C&T and Cheil Industries hurt investors. Elliott was a minority stakeholder in Samsung C&T and claims that the merger was done at an unfair price.
That maneuver has been chipping away at Korea’s global standing ever since. First, it helped take down a president and the scion of the Samsung family dynasty. In 2017, President Park Geun-hye was impeached and jailed amid bribery allegations surrounding the Samsung C&T/Cheil Industries scandal. Jay Y. Lee, whose grandfather founded Samsung, went to jail for bribery and embezzlement related to the case.
Why, oh why, Korea would want to “Streisand” this controversy at a moment when arguing its economy is ready for primetime boggles the mind. You’d think Samsung and the government would quietly pay Elliott the $108.5 million in damages and move on to better headlines in the global press.
Instead Korea is digging in. Why? Perhaps it’s national pride or basic stubbornness. Perhaps it’s that politicians don’t want to let regulators bite the corporate hands that feed their reelection campaigns. Maybe Korea Inc. genuinely views the 2015 merger as appropriate. Whatever the answer, this saga alone is fodder for those who still view Korea in “developing” terms.
Thing is, the folks at Elliott aren’t in Korea out of altruism. Billionaire Paul Singer’s Florida-based firm is there because of Korea’s incredible potential as an innovation and trade powerhouse.
Jay Y. Lee was pardoned because the government wanted his help in overcoming its “national economic crisis.”
Kim Min-Hee – Pool/Getty Images
As a top 12 economy—by some measures it’s in the top-10—Korea should be getting infinitely more long-term investment. Korea’s strength in semiconductors and ambitions to dominate artificial intelligence chips arguably make its economy as “future proof” as any.
But for many reasons—some highlighted by this Korea-versus-Elliott narrative—the nation suffers from a “Korea discount” that it’s been trying to shake for decades. The forces that depress the value of Korea’s blue chips are well understood but scarcely addressed: insufficient liquidity; too many regulations; weak corporate productivity; dividends that are too modest; and inadequate transparency.
The president who preceded Park’s 2013-2017 administration, Lee Myung-bak, promised to raise Korea’s economic game in part to end the stock discount. Little progress was made. Park’s presidency, of course, demonstrated rather spectacularly why investors don’t accord Korea Inc. the higher valuations it arguably deserves.
The Park-Samsung scandal dramatized how hard it can be to discern where the government ends, and the private sector begins. Enter President Moon Jae-in in 2017, promising to restore trust in Korea Inc. Moon implemented few, if any, major policies to reduce the dominance of Samsung and other family-owned conglomerates, or “chaebol,” towering over the economy. Nor did he execute his “trickle-up economics” plan.
Moon did, however, pardon Park, the optics of which did Seoul no favors in international circles. In 2022, current President Yoon Suk-yeol thought it wise to pardon Samsung’s Lee because the government wanted his help in overcoming its “national economic crisis.” Bad optics once again. And here you have Korean officials again failing to read the room, where global investors are concerned. Going extra rounds with Elliott is quite an own goal by Seoul.
As Elliott said in a July 18 statement, after news that Korea is fighting the tribunal’s decision: “This challenge to the award seems once again designed to use opposition to Elliott to distract from the damage done to Korean shareholders, domestic and foreign, by Samsung” and Korea, “who together treated them as pawns to be sacrificed in a scheme to benefit only a few powerful individuals.” Elliott officials aren’t exaggerating when they observe that it’s high time Seoul address “corrupt relationships between government officials and chaebol.”
Again, optics. If Korea is going to cajole MSCI and other indexes to regard it as a top-tier, ready-for-prime time developed market, officials in Seoul have some serious heavy-lifting to do. Sadly, they seem to be digging in and drawing new attention to old problems.