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Hedge fund sells off stake in local builder Taeyoung E&C

A promotional image of Taeyoung E&C's construction project in Changwon, South Gyeongsang Province. (Taeyoung E&C)
A promotional image of Taeyoung E&C's construction project in Changwon, South Gyeongsang Province. (Taeyoung E&C)
South Korean hedge fund Must Asset Management is moving to divest its stake in domestic builder Taeyoung Engineering & Construction, a month after it declared an end to its shareholder engagement, according to a disclosurce Wednesday.

The news comes after yearlong efforts by Must to shake up the governance structure of Taeyoung E&C, which led to spinoffs of the builder’s businesses outside the construction sector.

Since July 20, Must had offloaded a 4.61 percent stake in Taeyoung E&C publicly for 66.8 billion won ($56.3 million), according to the latest disclosure Tuesday. Must on July 20 changed its purpose for holding shares in the construction firm from “engagement in management” to “nonengagement,” so the investor is no longer permitted to engage in shareholder activism at the listed company. Taeyoung E&C is trading on Korea’s main bourse, Kospi.

As a result, Must is no longer subject to a disclosure obligation in Korea, with its Taeyoung E&C ownership shrinking to less than 5 percent as of Tuesday. Must oversees 373.5 billion won worth of assets in its hedge fund, which only invests in what is considered undervalued.

This came amid the ongoing process of Taeyoung E&C changing its holding structure, since Must first announced a bid to engage in Taeyoung E&C’s business in August 2019.

Taeyoung E&C in January this year rolled out plans to carve out some of its less crucial businesses under a new holding company called TY Holdings. The spin-off was scheduled to take place Tuesday.

During the shakeup, Taeyoung E&C will stick to its core construction-related businesses, which have generated some 70 percent of the company’s total revenue. The rest of the businesses, ranging from the nationwide TV network Seoul Broadcasting System to golf courses, sewage treatment and waste management operations, will be under the umbrella of TY Holdings. The Korea Communication Commission in June conditionally approved Taeyoung E&C’s spinoff plan, which would change SBS’ leadership structure.

The business restructuring plan stems from the hedge fund’s call to set up a governance body to improve its holding structure. Must, however, stopped short of creating one during its shareholder activism period from August 2019 to July 2020. Must declined to comment on the matter.

With the latest sell-off, Must reaped significant profits from its investment in the construction firm. The sales price per share -- ranging roughly from 16,000 won to 20,000 won -- was higher than what Must paid in its disclosed stock purchase in 2017, less than 6,000 won per share. Must began investing in the builder in 2014.

Before the divestment started, Must was the second-largest shareholder in Taeyoung E&C, holding a 15.9 percent stake as of end-2019. Taeyoung E&C Chairman Yoon Suk-mynn holds 27.1 percent.

So far in 2020, Must’s sales proceeds came to 144.2 billion won, or 17,390 won per share on average.

Market watchers say the hedge fund had accomplished its goal of profit-making in the name of the shareholder activism.

“It seems (Must) carried out the divestment to brace for the anticipated correction in the market buoyed by overflowing liquidity,” said Park Ju-gun, chief executive of corporate data tracker CEOScore. “(The recent stock price hike) has little to do with (Taeyoung E&C‘s) corporate governance change.”

Taeyoung E&C’s share price has more than doubled over the course of three years. Its share price climbed up 4.8 percent Wednesday to 20.650 won. It logged a 99.5 billion won net profit in 2019.

By Son Ji-hyoung (