Kingmaker (10)
If they had pulled a stunt like this in the United States, they would have been buried under class-action lawsuits from small shareholders and forced to cough up damages.
But this was South Korea, a country that treated business as if it were a noble calling.
The moment a company showed signs of growth, the controlling family would create a new affiliate in which they held the largest stake and funnel profits into it. As if that weren’t enough, they would split a company in two and relist it, legally stripping wealth from shareholders with a smile on their faces.
That was how corporations kept growing, how the KOSPI’s total market capitalization kept rising, and yet the stocks I actually owned, and the index itself, somehow never seemed to go anywhere.
I looked at Namgung Seok and said, “That’s why long-term investing doesn’t work in Korea, and why the KOSPI and KOSDAQ are called graveyards for retail investors.”
The practice of relisting after a material split-off was so common that I didn’t even need to dig around for a rare example. Nearly every chaebol group had done it, over and over again.
It wasn’t entirely without merit, but its side effects were barely discussed at all.
The reason was obvious enough: talking about them might hurt the chaebols’ interests.
Korean newspapers survived on chaebol advertising money, not on the love of their subscribers. So no outlet ever bothered to seriously call attention to the problem.
Even now, the public didn’t see post-split relistings as especially dangerous, but after the GL Entech listing, the mood had changed a little.
I was reminded of my first life.
Back then I had been working at DA Securities, so I knew better than anyone what had happened.
The instant GL Entech went public, institutions and pension funds dumped roughly 200 billion won worth of large-cap stocks just to get a piece of it, dragging the entire market down with them.
And the stock they sold most aggressively, as expected, was GL Chemical.
The shares of GL Chemical, which were trading around 1 million won at the time, would plunge into the 400,000 won range after GL Entech’s listing.
If GL Entech had never been listed in the first place, GL Chemical’s share price would have climbed past 1.5 million won.
When he understood what I was saying, Namgung Seok’s expression turned grave.
“If what you’re telling me is true, then once GL Entech lists, GL Chemical’s stock will collapse and small shareholders will suffer enormous losses.”
“That’s right.”
Namgung Seok looked at me and asked, “Then what are we supposed to do?”
I answered as if it were obvious. “We need to stop GL Entech’s listing.”
“Aren’t they already in the process?”
“Exactly why we have to block it now, before it goes any further.”
He set the documents down.
“There’s one thing I still don’t understand.”
“What is it?”
“You said Continue Capital was going to short GL Chemical, didn’t you?”
“Yes.”
“If you stop GL Entech’s listing, GL Chemical’s stock won’t fall, and Continue Capital will take a loss.”
“It would, yes.”
“Then why come to me and ask me to stop the GL Entech listing?”
He was probably wondering why I would do something that hurt my own firm.
“Think of it as a form of public-interest whistleblowing.”
At that, he gave me an incredulous look.
“Public-interest whistleblowing?”
“Yes. As you know, I started out as a whistleblower.”
I was the one who had exposed DA Securities’ rotten Primus Fund scandal to the press after the company tried to bury it.
He let out a dry laugh.
“Isn’t this a little different from that?”
I pressed on as if I were trying to convince him. “Everything I told you today is true. Continue Capital is going to short the stock, and GL Chemical’s shareholders will suffer massive damage. The best outcome is to stop the GL Entech listing. If that’s impossible, then at the very least, the existing shareholders should be compensated.”
“Is there another motive here?”
“Another motive?”
“You say you’re shorting it, but isn’t it also possible you’re planning to buy GL Chemical stock and make a profit that way?”
That was a sharp question.
If I simply denied it here, he wouldn’t believe me so easily.
So I answered with brazen confidence.
“And what if I am?”
“……What?”
“Even if that happened, it would still be profit that GL Chemical’s shareholders were rightfully entitled to. Whether Continue Capital is among them or not doesn’t change that.”
“…….”
“GL Entech’s listing is an obvious injustice that would harm GL Chemical’s minority shareholders. Whether Continue Capital benefits from it is not the important issue here.”
After Han Miru left, Namgung Seok lit a cigarette and went back over the material he had handed over. Then he searched for articles and academic papers on the subject himself.
To his surprise, everything Han Miru had said was true.
When a parent company listed a subsidiary in which it held a majority stake, it opened the door for outside investors to buy into the subsidiary directly, which often lowered the parent company’s investment appeal and caused losses for existing shareholders.
And this wasn’t just a GL Group problem.
More than ten such affiliate listings were already waiting in the wings this year alone.
LK Group had LK Science and LK Invest. Daeyeon Heavy Industries had Daeyeon Oil. Tapioca Group had Tapioca Games, Tapioca Shopping, and Tapioca Entertainment.
From the chaebol’s perspective, it was a way to increase the group’s overall market cap without jeopardizing control. For executives, it meant enormous stock options.
The securities firms got paid for underwriting IPOs, and institutions got new companies to invest in. Everyone made money.
Only one party lost.
The small shareholders who had already invested in the original company.
And yet, astonishingly, this fact was not widely known, and no one was really calling attention to it.
Namgung Seok thought of Han Miru.
Public-interest whistleblowing?
He didn’t believe it for a second.
I don’t know whether Continue Capital really plans to short it or not, but...
Now that he knew the truth, he couldn’t simply sit still.
After I got back to the office, I told Senior Dongho and Kim Beom-seok everything that had happened with Namgung Seok.
Since I had already asked them to prepare the materials, both of them fully understood what kind of trouble the GL Entech listing would cause.
Senior Dongho nodded. “No matter how many times I hear it, those bastards really are pieces of shit.”
“Yeah. They are.”
Kim Beom-seok nodded as well.
“From GL Chemical shareholders’ point of view, it must feel like they’ve lost their minds. After all the pain they endured believing in the company, this is what they get.”
Battery businesses were being praised as the industry of the future now, but until ten years ago, the outlook had been far from clear.
The losses had been so severe that even inside GL Group, there had been talk of cutting the division loose.
But GL Chemical kept pouring the profits it made from petrochemicals into the battery business. As a result, its operating profit was almost nonexistent, and dividends were nearly nonexistent too.
The battery division only turned profitable last year.
After more than twenty years of absorbing losses, watering it, fertilizing it, pruning it, and waiting, the tree had finally borne fruit.
And just as they were reaching for that fruit, someone had ripped the whole tree out of the ground.
Senior Dongho snorted. “That’s why people call you insane if you try long-term investing in Korea.”
There’s a line that investment masters always love to repeat: long-term investing in good companies is guaranteed to pay off.
But that only holds true if the company’s profits don’t leak out somewhere else.
Once a business grows even a little, the first thing that happens is that side businesses appear, all built to siphon money away. Oddly enough, the owner of those businesses is often the founder’s family or relatives.
Sometimes the executives even run the side businesses themselves.
Take SOT Entertainment, one of the top three entertainment companies in the country. It outsourced the production of every album to a company called VeryGood Planning.
That company didn’t even have its own office; it occupied space inside SOT’s headquarters, and since it didn’t own any equipment either, it borrowed SOT’s facilities.
Even so, SOT Entertainment paid VeryGood Planning 6 percent of its annual sales in royalties every year.
Six percent might not sound like much, but this was 6 percent of sales, not 6 percent of profit.
Last year, that came to 20 billion won, more than half of the company’s operating profit.
And the owner of that company was none other than CEO Im Su-cheon, SOT Entertainment’s largest shareholder. It was even a private company, not a corporation.
This was the Korean stock market: a place where absurd transactions were carried out legally, day after day.
As if that weren’t enough, they would split a healthy company in two and list both halves. The moment the listing went through, GL Group’s market cap would jump by tens of trillions of won and overtake LK Group.
The chaebols kept getting bigger and bigger, but for some reason small shareholders always ended up taking the loss.
How was long-term investing supposed to work under those conditions?
The common thread among Benjamin Graham, Peter Lynch, and Warren White—the names always invoked as legends of long-term investing—was that they had invested in the American stock market.
If they had invested in the KOSPI or KOSDAQ instead, they would have gone broke long ago and been left with nothing. Or they’d be staring at their HTS terminals, scalping for scraps.
“The GL Entech listing issue is going to be a market topic for a while. What do you think happens if Continue Capital gets involved?”
Continue Capital’s reputation in Korea was already beyond explanation.
It had dismantled Hanjung Group, and just recently it had sent stock prices plunging for major game companies, including LD Studio.
Notoriety was still notoriety.
Just by touching the GL Entech issue, Continue Capital would make the entire country understand how serious the matter was.
“Ah! So you’re saying we get Namgung Seok to block the GL Entech listing, then publicize the issue and give it a push.”
“Exactly.”
The bigger the uproar became, the higher Namgung Seok’s name recognition would climb.
Kim Beom-seok asked carefully, “But will Namgung Seok really step in to solve this?”
“He will.”
I was certain of it.
The GL Entech listing had caused major controversy even in my first life.
After that came a flood of proposed laws: one banning post-split listings, others requiring the distribution of treasury shares to existing shareholders or granting them rights to subscribe to new shares.
And the person who led the legislative charge most aggressively was Namgung Seok.
This time, I had warned him about the seriousness of the issue before anyone else. He would definitely try to stop the GL Entech listing.
Senior Dongho grinned with excitement. “Oh! So now we just buy GL Chemical stock?”
I let out a long sigh. “If you do that, you won’t make money. Thinking that carelessly means you won’t make money.”
What on earth was wrong with him? He was supposed to be an analyst, so why was his judgment this sloppy?
No wonder every investment he touched had gone down in flames.
Senior Dongho looked flustered. “W-wait. Why not? Then how do we make money?”
“I already told you. We’re going to short GL Chemical.”
“……Huh?”
He still looked completely lost.
“Hold on. That’s not what you just said. You told Namgung Seok to stop the GL Entech listing.”
“I did.”
“If the listing falls through, GL Chemical’s stock will go up, won’t it?”
“At least 30 percent from here.”
“Then why short it?”
He looked at Kim Beom-seok as if asking for backup.
“Do you get this?”
Kim Beom-seok also seemed a little bewildered.
“Honestly, not really.”
The two of them were missing one very important point.
That was...
“This isn’t the first or second time something like this has happened. Do you really think a single member of the National Assembly can stop something tied to the core interests of the chaebols?”
Why did they have so little faith in K-chaebols?
Material split-offs and subsidiary listings were the easiest legal tools chaebols had for picking retail investors’ pockets.
If anyone tried to restrict that, what chaebol would possibly welcome it?
They would complain nonstop that it interfered with business activity, that it would hurt investment and employment, that it treated Korean firms unfairly compared with foreign companies. In other words, they’d spew a load of nonsense and fight it tooth and nail.
If the chaebols opposed it, the press would oppose it. The political establishment would oppose it. That was how this country worked.
However right Namgung Seok was, nobody would care.
I cut it off cleanly. “Namgung Seok will never stop the GL Entech listing. So let’s relax, attack GL Chemical, and strip as much money out of it as we can.”