Kumho Petrochemical faces triple whammy

Kumho Petrochemical headquarters in Seoul / Courtesy of Kumho Petrochemical

Kumho Petrochemical Chairman Park Chan-koo

Minority shareholders plan to sue chairman for damaging company

By Park Jae-hyuk

Kumho Petrochemical Chairman Park Chan-koo is in the hot seat over a forthcoming lawsuit from minority shareholders, while the company is also grappling with the falling profitability of its petrochemical business, according to industry officials Wednesday.

Given that its passive attitude toward new ventures has also been viewed as one reason for its bearish stock price, critics warn that more unsatisfied shareholders could give support to the chairman's nephew in his next attempt to take control of the company.

In the first quarter of this year, Kumho Petrochemical's operating profit declined 26.7 percent to 449 billion won ($355 million) from the same period last year, according to its regulatory filing.

The profit deterioration was mainly attributed to the rising global price of naphtha, the key material for the company's products, and weakening demand following China's lockdown measures to prevent the spread of the coronavirus.

Kumho Petrochemical expected the market prices of most of its products to remain sluggish during the second quarter.

Yuanta Securities analyst Hwang Kyu-won said that the petrochemical firm's earnings and stock price will become much weaker during the second quarter.

"The company's acrylonitrile butadiene latex business has hardly generated any profit since March," Hwang said. "The demand for its phenol derivatives is also weak, amid soaring global oil prices."

Despite the unfavorable outlook, the company has been considered to be passive about pushing ahead with new businesses, compared to its competitors such as Lotte Chemical and Hanwha Solutions.

Although its management promised to invest up to 4.5 trillion won over the next five years in fostering new businesses, Kumho Petrochemical is said to be still "considering" pursuing new projects, as the chairman's oldest son, Vice President Park Joon-kyung, has focused more on sales.

Kumho Petrochemical Vice President Park Joon-kyung

Amid the slow progress in new businesses, Kumho Petrochemical's stock price, which peaked at 298,500 won last May, has stood at around 160,000 won over the past few months.

As the lower stock price has been fueling complaints from minority shareholders, they decided eventually to sue the chairman for allegedly violating the government's order not to interfere in management.

Hannuri, the law firm representing Kumho Petrochemical's minority shareholders, claimed that the chairman had been paid 15.5 billion won in wages from the company as its CEO between 2019 and June 2021, even though he was banned from working for the company for two years since he was found guilty in late 2018 of breaching his duties.

"As a result, Kumho Petrochemical suffered a loss of 15.5 billion won," the law firm said.

Kumho Petrochemical declined to comment on this issue.

In 2021, the petrochemical firm lost in the administrative suit it filed against the Ministry of Justice for its ban on the chairman working for his company.

Another war between chairman and nephew?

Some minority shareholders have asked former Senior Vice President Park Chul-whan to take additional action against the chairman.

After losing to his uncle in the general meeting of shareholders earlier this year, the younger Park vowed to continue his efforts to enhance corporate and shareholder value, as the company's single-largest shareholder.

"For the company's long-term growth, I will keep monitoring whether it actually makes investments in new businesses," he said in a statement. "If necessary, I will also convene an extraordinary general meeting of shareholders to represent the shareholders."

Considering the fact that the National Pension Service, one of the major shareholders of Kumho Petrochemical, has put more emphasis on environmental, social and corporate governance (ESG) factors in its decision-making, there exists speculation that the state pension fund could side with the nephew against the chairman, if the forthcoming lawsuit from minority shareholders turns out to be a victory for them, verifying problems with the company's governance.

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