South Korea’s National Pension Service (NPS) will invoke stewardship guidance to correct the stingy dividend policy of Namyang Dairy Products Co., making it the second target in the fund’s commitment to stronger institutional responsibility to improve corporate governance and shareholder value in Korean Inc.

The world’s third-largest pension fund with 635 trillion won ($568 billion) assets under management has taken issue with Namyang Dairy’s low dividends since 2016, refusing to approve the company’s financial statements for three years in a row.

“We want to change an article in Namyang’s corporate mandate to set up an advisory committee regarding its dividend policies and regulatory filings,” said the NPS in a statement on Thursday. It stressed that the proposal did not amount to management interference under the capital market law.

The move comes a week after the fund asked Hanjin KAL, the holding entity of Hanjin Group that owns the country’s flag carrier Korean Air, to change its corporate article to dismiss board members convicted of criminal charges.

In July 2018, the NPS adopted the stewardship code and formed an independent advisory committee in charge of reviewing companies in need of correction within authorized voting rights.

The fund has black-listed Namyang Dairy for its stingy dividend policy since 2016. After placing the company under private supervision in 2017, it publicly disclosed “no improvement” in Namyang’s dividend policy.

Namyang Diary has set its annual dividends at 1,000 won ($0.89) per share from 2016 to 2018. During the same period, its operating profit, which amounted to 20.1 billion won in 2015 and 41.8 billion won in 2016, shrunk to 5.1 billion won in 2017. As its dividends were fixed despite the worsened bottom line, its payout ratio surged considerably to 17.02 percent in 2017 from 3.21 percent in 2015.

The NPS plan may not go through as it holds just a 5.71 percent stake in Namyang Dairy. An amendment of articles of association needs the approval of at least two-thirds of shareholder votes.

Shares of Namyang Dairy finished Friday 1.43 percent higher at 639,000 won.

By Yoo Joon-ho and Kim Hyo-jin

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]