A recently-acquired large ownership stake in Daol Investment & Securities Co. is raising questions, as the now second-largest shareholder who is a representative of Presto Investment Management Co., is suspected of actually holding more than a 10 percent stake in the company, taking into account the stakes held by “specially related persons” together. The combined ownership position has not gone through any ownership suitability assessment.

According to regulatory fillings at the Financial Supervisory Service and industry sources on Friday, Kim Gi-soo and his relative, a real estate company Soonsoo Asset and Kim’s Presto Investment Management own a total of 8,736,629 shares of Daol, a combined 14.34 percent stake in the company.

Kim started to buy Daol stocks on April 28 after the company’s stock price plunged on April 24, following the sell-off triggered by contract for difference (CFD) trades at Societe Generale Securities.

Kim, his relative Choi and Soonsoo Asset acquired a stake in Daol of 11.5 percent through Kim’s Presto Investment Management, by May 8. They made additional purchases in the open market for 2.84 percent of shares, resulting in a current ownership of 14.34 percent stake controlled by Kim and his related parties.

The shares owned by Kim and related parties is second after the 25.26 percent stake owned by Daol Chairman Lee Byung-chul himself, with a mere 11 percent difference between the largest shareholder and the second-largest shareholder.

Kim stated in a regulatory filing that the purchase was a “simple acquisition” and that the purpose of ownership was for “general investment,” the same as in the earlier filing.

However, some argue that Kim and his related parties should be subject to a review, to assess their suitability as major shareholders of a financial institution required under the relevant law, as they hold more than 14 percent stake in Daol Investment & Securities, despite the stakes being technically in the names of different subjects.

Regulations state that a major shareholder of financial institutions must obtain prior approval from financial authorities. This requirement is put in place to assess the capital capacity, financial soundness and credit of the potential major shareholder, enabling regulators to control any unqualified entry into the financial industry.

Under the Korean law regulating corporate government of financial institutions, any person - excluding “specially related persons” - who holds more than 10 percent of the outstanding voting shares of a financial institution is subject to a major shareholder suitability assessment. The law defines a “person who holds at least 10/100 of the total number of outstanding voting shares of a financial company in their own account, irrespective of in whose name the shares are held” as being a “large shareholder.”

“If the shareholding exceeds 10 percent, it becomes a ‘major shareholder’ and must be approved beforehand,” said an official of the FSS. “However, under the law regulating capital market, the definition of a ‘major shareholder’ is focused on the de facto control over the share, and holdings by specially related persons is not necessarily considered,” the regulator added.

At the moment, Kim’s stake in Daol held in his name is 7.07 percent, Choi’s is 6.40 percent, and Soonsoo Asset holds 0.87 percent of the shares outstanding.

The regulatory filing shows that Kim and Choi share the same address, which leads to the assumption that they are members of the same household. Soonsoo Asset is a real estate leasing company established in 2007. It is believed to be a family company owned by Kim and his son, who has a legal entity in Singapore. Presto Investment Management, as well, is owned 100 percent by Kim and Choi.

According to Supreme Court precedent, the criteria to determine whether stock acquisition in question is made in one‘s own account includes whether the source of the funds for the stock acquisition is the shareholder, and if both profits and losses belong to the shareholder.

Irrespective of the actual name on the account, if the shares owned by Kim and related parties are regarded as being held “in his own account,” it could be understood that Kim is a major shareholder with a stake of over 10 percent.

“Based solely on the information in the regulatory filing, the shareholders of the stakes are not believed to be held in one person’s own account, and thus are not subject to an assessment, but we’re keeping an eye on it,” said an official from the FSS.

Kim’s acquisition of the shares was not initially flagged by regulators, as the purchases were made within a short period of time after the sell-off triggered by Societe Generale Securities, and the details surrounding the purchases were not clear.

It is stated that the stakes bought by Kim and Choi are “investments by an institutional investor,” not by individual investors.

“When the investor is an institution, it’s usually not suspect of being an attempt at a hostile merger & acquisition or for management control,” said an industry insider.

Many individual traders and spectators are guessing as to Kim’s intentions. Some of them in fact noted that some intensive purchases were made in short periods of time through a certain brokerage firm, even before Kim’s mandatory regulatory filing, and they predicted the possibility of another major shareholder.

“There are many stocks that are undervalued or have higher dividends than Daol. A stake of more than 14 percent cannot be an investment without any other intention,” one online commenter said, expecting to hear some comment back from Kim in the near future.

By Pulse

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