Proxy advisors recommend NPS vote for POSCO split-off

South Korea's National Pension Service (NPS), the largest shareholder of POSCO Co., was recommended by all its four proxy advisors to vote for the steelmaker's plan to split itself into a holding company and a steelmaking unit, according to people with knowledge of the matter on Wednesday.

Glass, Lewis & Co., Institutional Shareholder Services Inc. (ISS) and two South Korean proxy advisors have verbally delivered such a recommendation to the NPS, ahead of POSCO's shareholder gathering due on Jan. 28.

After POSCO Group on Dec. 10 decided to split off POSCO into POSCO Holdings and a steelmaking company with the holding firm owning 100% stakes in affiliates, the NPS sought opinions from its proxy advisory firms on how to vote on the steel company's restructuring plan.

The world’s No. 3 pension scheme holds a 9.75% stake in POSCO as of end-September, 2021, followed by No. 2 shareholder Citibank with a 7.3% stake. Citibank serves as a custodian of the US-based shareholders and thus has no voting rights on the shares.

Minority shareholders take up the majority of 70% of its outstanding shares.

"Since POSCO pledged not to list the companies to be spun off, there is little likelihood that the split-off might damage its shareholder value," one of the people said, quoting the NPS' proxy advisors, which also include Korea Corporate Governance Service and Korea ESG Research Institute.

To dispel concerns about equity value dilution from its transition into a holding company structure, POSCO Group Chairman and Chief Executive Choi Jeong-woo last month reaffirmed its determination not to list on the stock market the steelmaking unit and other businesses to be separated from its to-be-launched holding company.

Moreover, POSCO earlier this month decided to cancel treasury shares in its holding firm, in an effort to win shareholder support for the restructuring plan. 

GOING AGAINST ADVICE?

The NPS on Jan. 24 will decide on how to vote on POSCO's spin-off plan. 

The $770 billion pension fund has tended to refer to proxy advisory firms on sensitive issues that could have a big impact on the stock market. But it has not always listened to them.

"NPS has consistently voted against company spin-off plans," said an investment industry source. "It often went against advisory firms' recommendations."

As examples, it opposed LG Chem Ltd.’s plan to separate its battery business into a new company in 2019; SK Innovation Co.’s split-off of its battery division into a separate entity in 2020; and Mando Corp’s spin-off of autonomous driving parts business in 2021.

Despite the NPS' veto, the three spin-offs went through, with LG's battery unit LG Energy Solution Ltd. set to list on the Korea Exchange on Jan. 27.

POSCO's spin-off plan requires approval by more than two-thirds of shareholders in attendance at a shareholder meeting and by holders of shares amounting to one-third of those outstanding.

At the top of the group corporate governance structure, the holding company will own 100% of affiliates such as POSCO Chemical Co., POSCO Energy Co., POSCO Engineering and Construction Co. and POSCO International Co. 

Write to Jae-Fu Kim at hu@hankyung.com
Yeonhee Kim edited this article.