[Governance] Considering Stock Gifts in a Plummeting Market at Goryeo Steel... Largest Shareholder Transfer 'From Father to Son'①

[Graphic and Analysis by Heejin Lim]

Chairman Hong Young-cheol Gifts 1.15 Million Shares to President Hong Seok-pyo, Timing to Save Taxes

President Hong Secures 20.07% Stake, Succession Process as Largest Shareholder Begins in Earnest

[Asia Economy Reporter Park So-yeon] Korea Steel took advantage of the stock price decline to lay the groundwork for succession. At a time when the stock market plunged, a large-scale stock gift was made, changing the largest shareholder from Chairman Hong Young-cheol, the father, to President Hong Seok-pyo, his son.

According to the Financial Supervisory Service's electronic disclosure system on the 27th, Chairman Hong Young-cheol gifted 1.15 million shares (5%) to his son, President Hong Seok-pyo, on the 25th. The closing price that day was 19,550 KRW, amounting to approximately 22.5 billion KRW based on the closing price.

With this gift, President Hong Seok-pyo's stake changed from the existing 15.07% to 20.07%. Chairman Hong Young-cheol's stake decreased from 16.49% to 11.49%. Accordingly, President Hong became the largest shareholder.

Recently, the domestic stock market showed a sharp decline due to the rapid increase in Omicron cases and interest rate hikes. A market crash is advantageous for saving gift tax. The tax imposed when gifting stocks is calculated based on the average stock price over two months (a total of 120 days) before and after the determination date. Therefore, gifting stocks during a market crash can reduce the gift tax accordingly.

The Hong family’s stock succession process began in earnest since the year before last, when the COVID-19 pandemic started. There was no share gift in 2019, but on February 4, 2020, shortly after the outbreak of COVID-19, Chairman Hong Young-cheol gifted 200,000 shares (1%) to President Hong Seok-pyo, worth about 3.5 billion KRW.

President Hong also steadily purchased shares on the market by himself. Over two years from 2020 to 2021, he bought about 430,000 shares on the market, totaling approximately 6.6 billion KRW.

In 2020 alone, he made 11 purchases totaling 424,795 shares (6.45 billion KRW). He concentrated his purchases from February to May, the early period of the COVID-19 outbreak. Even last year, when COVID-19 continued, he additionally purchased 6,719 shares (0.03%) on December 1 and 1,397 shares (0.01%) on December 2. Through this process, President Hong’s stake, which was 11.91% at the beginning of 2020, rose to 20.07% as of the 27th, an increase of 8.16 percentage points.

Accordingly, the shareholder composition and shareholding ratio of Korea Steel are as follows: President Hong 20.07%, Kiswire Holdings 15.24%, Kistron 14.12%, Hong Young-cheol 11.49%, and nine other related parties including Hong Seok-pyo holding a total of 67.73%.

A financial investment industry official said, "It can be interpreted that the full-scale succession process began simultaneously with the gift," adding, "Attention should be paid to how Korea Steel’s overall governance structure, including the holding company Kiswire Holdings, will be affected."