Stocks of state-run firms on downward spiral

18-Feb-2020 Intellasia | KoreaTimes | 6:02 AM Print This Post

Stocks of state-run companies have plunged amid doubts that they will not carry out “profit-driven management” in order to stay in line with government policy drives.

Starting this year, shares of a number of state-controlled organisations listed on the main bourse have been on a downward curve, according to data from the Korea Exchange.

They included the Industrial Bank of Korea (IBK) and the Korea Electric Power Corp. (KEPCO), two of the nation’s most representative public corporations.

The stock price of IBK rose to as high as 12,500 won ($10.58) December 16, but it plummeted to 10,450 won as of February 12 after the bank was hit hard by the month-long scandal surrounding its leader Yoon Jong-won.

Yoon, a former senior secretary at Cheong Wa Dae, was named for the position of IBK chief in early January. But with union members staging a fierce protest against the appointment, he failed to enter its headquarters office for about a month.

But the scandal, in itself, was not the sole reason behind its falling stock value. Experts said the decline was attributable to weakening investor appetite toward the bank, as the former ranking government official is unlikely to run the organisation simply to maximise investors’ interests.

The government holds a 53.2-percent stake in IBK, and this is the key reason for the bank’s stock value to be in the doldrums, according to analysts.

“There is no clear correlation between management performance and the CEO’s background,” Meritz Securities analyst Eun Kyung-wan said. “But the bank’s stock value was hit by escalating concerns that the state-run bank would be under pressure from the government to follow certain policies, such as the expansion of low-interest loans.”

“Of course, the conflict between Yoon and the union also came as a negative factor in terms of investment sentiment,” the analyst said.

He also expected the bank to offer a similar level of dividends to shareholders in 2020, compared to a year ago. This is because the company will unlikely suffer an additional decline in earnings this year, and its dividend of 690 won per share appears not that bad in consideration of the bank’s stock price he said.

Expectations are that the bank will not carry out management to maximise shareholders’ interest as the Moon Jae-in administration is characterised by a policy drive for welfare of the underprivileged.

Shares of KEPCO have also began spiralling downward this year ? it was was traded at around 28,000 won in December, but fell to 25,050 won, February 3.

This is the lowest share price in the past five years, and the firm’s stock value has declined by more than 20 percent in the past year.

The state-controlled electric utility company has also been mired in a series of controversies due to its involvement with the government.

“In general, the prices of stocks of state-run companies are affected more by government policies than private ones,” Hwang Sei-woon, an economist at the Korea Capital Market Institute, said.

“As such public corporations are also listed firms, they pursue profits,” he said. “But any shift in government policies inevitably affects their earnings and stock prices.”

Shares of Korea District Heating Corporation also fell in recent months. The company was traded as high as 49,850 won as of November 18, but its valuation steeply declined to 39,800 won on February 5.

Kangwon Land, a state-run casino and resort operator, also suffered from a decline in its valuation. Its stock value was traded at around 30,000 won, but fell below 27,000 won as of February 13.


Category: Korea

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