Kumho Petrochemical's Treasury Shares Face Governance Test After 20 Years [Treasury Share Report]

[Korea Financial Times, Gwak Horyung] Kumho Petrochemical is set to amend its articles of incorporation at its annual general meeting (AGM) to formally require shareholder approval for the retention and disposal of treasury shares. The move is designed to prepare for an era of mandatory treasury share cancellation under revised commercial law. Treasury shares that have served as a decisive "shield" in governance disputes for more than two decades since the 2001 merger will now be placed directly before shareholders for judgment.

Laying Groundwork for 'Strategic Retention' Ahead of Commercial Law Reform

Kumho Petrochemical will hold its 49th AGM on March 26 to consider a proposal adding provisions on treasury share retention to its articles of incorporation. Under the existing articles, treasury share-related matters are decided by the board of directors. The proposed amendment adds language allowing the company to retain or dispose of treasury shares once a plan receives shareholder approval at a general meeting.

The revision is part of a broader effort to align the company's articles with the third round of amendments to the Commercial Act, which took effect this month. Under the revised law, treasury shares held or newly acquired by a company must in principle be cancelled. However, continued retention is permitted with AGM approval.
Kumho Petrochemical's articles of incorporation specify that treasury shares are held for management purposes including the introduction of new technologies and improvement of financial structure. The company has previously indicated its intention to use treasury shares to fund investments in eco-friendly, high-value-added new businesses and mergers and acquisitions (M&A).

In contrast to companies such as SK and Doosan, which decided to cancel all treasury shares in the lead-up to and following the Commercial Act amendments, Kumho Petrochemical's insistence on retaining at least a portion of its holdings is widely seen as linked to its relatively fragile ownership structure.

The founding family's combined voting stake stands at just over 17%, comprising Chairman Park Chan-koo (7.84%), his eldest son President Park Jun-kyung (8.39%), and his eldest daughter Vice President Park Ju-hyung (1.24%). In addition, Park Cheol-wan, a former executive director and the chairman's nephew who is at the center of the governance dispute, holds approximately 10%. Park has warned the company that he will pursue legal action if it proceeds with the issuance of exchangeable bonds (EB) using treasury shares.

Cancellations Accelerated Since the 'Nephew's Revolt'

Kumho Petrochemical currently holds 3,498,834 treasury shares, equivalent to 13.44% of issued shares — down by approximately 2 million shares from 5,592,528 shares (18.36%) held just before the governance dispute, known internally as the "Nephew's Revolt," erupted in 2020.

Specifically, through a shareholder return plan announced in 2021, the company stated its intention to deploy previously held treasury shares over the following decade for future strategic investment and cancellation. That same year, the company cancelled 171,847 treasury shares while simultaneously exchanging an identical 171,847 shares with OCI in a stock swap described as a strategic collaboration to advance a new bio-materials business. Park Cheol-wan filed suit at the time alleging the share exchange was motivated by a desire to entrench management control, but the case was dismissed.
In 2024, the company unveiled a more aggressive shareholder return policy, committing to cancel half of the treasury shares it held at the time — 2,624,417 shares — over a three-year period. The move was widely interpreted as a response to pressure from Park Cheol-wan, who had allied with Cha Partners Asset Management to challenge the company.


Kumho Petrochemical has since cancelled two-thirds of the committed volume in 2024 and 2025, with plans to cancel the remaining one-third within the first half of this year.

Separately, the company is also conducting treasury share buybacks and cancellations in accordance with its 2024–2026 shareholder return plan established last year. Under that plan, 40% of standalone net profit is earmarked for shareholder returns — 20–25% for dividends and 10–15% for treasury share buybacks and cancellations. On March 11, the company repurchased 246,305 treasury shares worth approximately KRW 30 billion for the purpose of cancellation. This exceeds the committed shareholder return ratio against last year's standalone net profit of KRW 175.7 billion, at approximately 17%.

The bulk of Kumho Petrochemical's large treasury share holdings originated from the absorption merger of Kumho Chemical in 2001, which resulted in the acquisition of Kumho Chemical's stake in Kumho Petrochemical plus shares subject to appraisal rights (10.41 million shares), bringing the total — including directly and indirectly held shares — to 15.71 million shares, equivalent to 46% of total issued shares.

In 2004, a large-scale treasury share cancellation was carried out, and a portion of the remaining shares was purchased by members of the Kumho founding family, including Park Sung-yong, Park Sam-koo, Park Chan-koo, and Park Cheol-wan. The residual 5.59 million shares have remained on the company's books as treasury shares for the ensuing two decades.

Gwak Horyung (horr@fntimes.com)