There are fears speculative foreign capital attacks on South Korean companies could rise after the National Assembly passed bills to weaken the dominance of top shareholders, with Whitebox Advisors LLC already attracting attention for its pressure on LG Corporation.

On December 9 the National Assembly revised the Commercial Act, the Fair Trade Act and a bill supervising business groups that have financial units, in an effort to check the dominance of top shareholders and enhance the supervision of conglomerates’ business practices, including inter-affiliate transactions.

However, there is concern in business circles that the measures could erode companies’ business sentiment and shrink investment amid the economic slowdown caused by the latest outbreak of the Covid-19 virus. Experts also warned that the measures would accelerate speculative foreign capital attacks on local companies.

The warnings came after Whitebox Advisors LLC sent a letter on Monday (December 14) to LG Corporation opposing a plan by LG Group to spin off five affiliates. LG announced last month that it would spin off a new holding company comprising the company’s direct and indirect holdings in LG Hausys, LG MMA, Silicon Works, LG International and Pantos.

Whitebox, a U.S.-based hedge fund, asserted that the spin-off would not create value for long-suffering minority shareholders.

“This transaction would spin out about 2% of LG’s current net asset value (NAV). In addition, 9% of LG’s 1.8 trillion won cash balance would be transferred to the spin-off,” Whitebox said in the letter. “We are deeply dismayed that the purported rationale for this transaction is to support Koo Bon-joon in developing his own business group, like others in his family. Given LG’s staggering NAV discount and the apparently anti-shareholder rationale for this transaction, we have serious concerns about the spin-off decision.”

Led by Simon Waxley, a former managing director and portfolio manager of activist hedge fund Elliott Management, Whitebox is known to have a stake of 0.6% to 1.0% in LG, while the LG Group owner family currently controls 46.6% of the company.

“Whitebox doesn’t have a considerable stake in LG at the moment, but we can’t rule out the possibility that it will join with other foreign funds to demand their claims by penetrating loopholes in the so-called three fair economy bills,” Professor Kim Tae Gi of Dankook University said in an interview with local newspaper Sedaily.

In response to Whitebox’s letter, LG Group insisted the spin-off would increase the value of shareholdings by allowing the company to focus its capabilities on businesses such as electronics, chemicals, and telecommunications.

“In the end, the government has laid the groundwork for speculative foreign capital to attack local companies,” said an expert. “To prevent similar cases from occurring in the future, the government has to provide domestic companies with tools to defend their management rights.” (Reporting by Jinwon Lee)