HL Holdings, shareholder return rate 'minus', shareholders who lost their own shares 'unhappy'

[Korea Financial Times, Lee Sungkyu] HL Holdings has been embroiled in controversy after deciding to donate its own shares to a non-profit foundation. From the shareholders’ perspective, it is as if they have lost their own shares in a situation where the total shareholder return ratio (TSR) has been continuously negative. This is why criticisms are growing that it is intended to increase the control of Chairman Chung Mong-won, the largest shareholder.

According to the financial investment industry on the 21st, HL Holdings held a board meeting on the 11th and approved an agenda to donate 470,193 shares of its own shares to a non-profit foundation to be established in the future. The company says the decision was made to fulfill its social responsibility.

These represent 83.8% of the 560,720 shares of its own shares purchased throughout 2020 and 2021 to enhance shareholder value. Although it emphasized ‘increasing shareholder value,’ it is a case of breaking its own promise.
The purchase of own shares itself only partially helps increase shareholder value. Since own shares do not have voting rights and therefore do not pay dividends, repurchasing own shares results in increasing the dividend yield per share. If the voting rights are revived through the sale or donation of own shares instead of cancellation, the dividend yield is likely to decrease again.


The Korea Financial Times calculated the cumulative total shareholder return rate (TSR) of HL Holdings from January 2020 to the present through the data platform Deep Search, and the result was -7.63%. During this period, HL Holdings' stock price fell 25.05%, and the cumulative dividend yield was 17.43%.

While the stock price continued to fall, it defended the stock price decline by paying a dividend of 2,000 won per share every year. Unless the total dividend amount is increased, the power that supported the TSR may weaken if the treasury share voting rights are revived.

Holding company discounts, Free transfer of own shares… Shareholders suffer ‘double pain’

In the domestic market, holding companies tend to have high discount rates. In order to increase shareholder value, the intensity of shareholder return should be higher than that of a normal business company. HL Holdings’ PBR(price-to-book value ratio) has been moving at the level of 0.3 to 0.5 times for the past five years. Recently, it has been trading at a level slightly above 0.3 times, which is far from a value-up.

In particular, in a situation where ‘corporate value-up’ is being promoted by the government and financial authorities, HL Holdings’ free transfer of shares is running counter to this.

The source of funds for treasury stock purchases is the company’s cash assets. HL Holdings’ decision to free transfer of shares is equivalent to purchasing treasury stocks with corporate funds and then transferring them to a foundation without any compensation. From a shareholder's perspective, HL Holdings has abused the company's funds.

In particular, shareholders’ opposition is bound to be even stronger because the dividend yield is maintained and the value per share increases when treasury stocks are cancellated.

It is also being reexamined that Chairman Chung Mong-won’s stake is only 25.03%. Even considering the stakes of special related parties (including KCC), it is slightly over 30%. This is why some are pointing out that the free transfer of shares is intended to secure friendly shares for the largest shareholder.
A researcher at a securities firm said, “Restructuring of the management structure, expansion of control, and succession tricks with treasury stocks have continued countless times,” and “In a situation where value-up is emphasized and interest in treasury stock cancellation is increasing, HL Holdings’ decision will be even more difficult to accept from the shareholders’ perspective.”

Lee Sungkyu (lsk0603@fntimes.com)