Emphasizing Commitment to Governance Restructuring... Utilizing Intermediate Holding Company
Also Implementing Articles of Incorporation Amendments Related to Physical Division
[Asia Economy Reporter Minyoung Cha] KT CEO Koo Hyun-mo, whose three-year term is set to expire this year, emphasized his intention to reorganize the corporate governance structure on the 31st of last month, mentioning the "possibility of transitioning to a holding company structure." Since KT has financial subsidiaries, a direct transition to a holding company is difficult, but the plan is to utilize intermediate holding companies such as Studio Genie and BC Card instead.
"Interest in Transitioning to a Holding Company Structure"
According to related industry sources on the 3rd, KT CEO Koo Hyun-mo stated at the regular shareholders' meeting held at the KT Research and Development Center in Seocho-gu, Seoul, on the 31st of last month, "Although we are not a holding company, we are definitely interested in transitioning to a holding company structure."
The reason CEO Koo mentioned a "holding company structure" instead of a holding company is because a general holding company would violate the principle of separation of financial and industrial capital (Geumsan Separation), which prohibits holding financial subsidiaries. The Fair Trade Act enforces the Geumsan Separation principle to separate industrial capital and financial capital, preventing general (non-financial) holding companies from owning shares of financial subsidiaries. In KT's case, BC Card and the internet-only bank K-Bank are subsidiaries (KT's stake 69.54%) and sub-subsidiaries (BC Card's stake 34.0%), respectively.
Therefore, an indirect route through intermediate holding companies was chosen. CEO Koo explained, "Last year, we grouped content under Studio Genie as an intermediate holding company, and for finance, we structured it with BC Card at the center and K-Bank underneath. We are seriously considering restructuring the business into a holding company structure, and if that happens, we believe there is potential for KT's stock price to rise."
"Existing Shareholders to Receive Subsidiary Shares upon Spin-off and Listing"
Measures were also taken to alleviate concerns about shareholder value dilution due to physical spin-offs. Typically, physical spin-offs often lead to stock price declines due to concerns over the parent company's decreased corporate value. Since listing after business division is a common step, conducting an IPO after spin-off could reduce control and dilute the value for existing shareholders. A representative example is the sharp stock price drop following LG Chem's battery business spin-off announcement in September 2020, which caused significant losses for many shareholders.
To avoid such controversies, KT established a basis for in-kind dividend distribution of subsidiary shares. At the shareholders' meeting, the articles of incorporation were amended to newly include the provision that "existing shareholders can receive subsidiary shares as dividends upon spin-off and listing." Earlier, KT announced plans to establish KT Cloud in February, mentioning the intention to amend the articles of incorporation accordingly. KT Cloud, created by contributing the existing cloud and Internet Data Center (IDC) businesses in kind, was spun off and launched on the 1st. KT plans to reflect any legislative improvements related to corporate spin-offs as well.
Researcher Kim Hong-sik of Hana Financial Investment evaluated, "The corporate governance restructuring has been under consideration by KT for several years, and considering the domestic regulatory environment and KT's vast organization, it is a clever plan that can expect regulatory avoidance and organizational slimming," adding, "Business restructuring focused on core businesses and profitability improvement is anticipated."
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