KT shares led by CEO Kim Young-seob are surging, approaching 60,000 won. Analysts suggest this is due to Kim's significant cost-cutting measures during last year's major restructuring, which enhanced profitability, and his positive contributions including a collaboration with Microsoft Corp. to transition into an artificial intelligence (AI) technology company. However, there are concerns within and outside the industry regarding the uncertainty of Kim's reappointment following the recent government transition, as previous changes in regime have often led to changes in KT's leadership.
◇ Kim Young-seob magic? KT hits highest stock price since privatization
According to the Korea Exchange on the 8th, KT's stock price soared to 59,100 won on the 4th, marking the highest price since privatization in 2002. Compared to the stock price at the time Kim was appointed as CEO (August 30, 2023) at 33,050 won, it has risen by approximately 79%.
There are many reports within and outside the industry stating that Kim's management strategies aimed at enhancing shareholder and corporate value have lifted the stagnant KT stock price. Since taking office, Kim has focused on policies that increase shareholder and corporate value, including introducing quarterly dividends, buying back 1 trillion won worth of shares for cancellation, and targeting a return on equity (ROE) of 9-10% as well as achieving an operating profit margin of 9%. Last year's reduction in labor costs through the adjustment of 4,400 high-seniority employees has also been reflected in the stock price. In fact, KT's operating profit in the first quarter of this year reached 688.8 billion won, up 36% compared to the previous year.
Analysts suggest that cooperations with foreign tech giants like Microsoft and Palantir in advancing AI businesses have also positively impacted the rise in stock prices. Global consulting firm KPMG forecasted that KT's revenue from the AX (AI transition) business will increase fivefold from 269 billion won in 2025 to 1.37 trillion won in 2029.
◇ Kim Young-seob shown in numbers… Shadows overlapping with Koo Hyun-mo's reappointment challenge
The issue is that since last month's government change, Kim's reappointment has become uncertain. Although Kim’s management abilities have been validated through stock price and performance numbers, many believe the new government will not guarantee his reappointment as it was during the previous administration. Historically, changes in regime have consistently led to changes in KT's leadership. Out of the five CEOs since KT's privatization in 2002, four have either failed to secure reappointment or stepped down before their term ended.
Former KT CEO Koo Hyun-mo challenged for reappointment in November 2022 after the regime change but was unsuccessful. Koo achieved a milestone by surpassing 25 trillion won in revenue for the first time since the company's founding in 2022. The KT stock price at the time Koo announced his reappointment (November 8, 2022) was 36,500 won, reflecting an 85% increase compared to the stock price at his appointment date (March 30, 2020) of 19,700 won. A telecom industry source noted, "Although former CEO Koo also proved his management abilities through numbers like the current Kim Young-seob, ultimately the new leader was decided by the government’s will," adding, "The second-largest shareholder, National Pension Service, essentially holds decision-making power."
Why does the second-largest shareholder, who is not the largest, the National Pension Service, hold the key to deciding KT's leadership? According to KT, the company's largest shareholder is Hyundai Motor Group, which owns 8.07% of the shares. The subsequent largest shareholders are National Pension Service (7.57%), Shinhan Bank (5.77%), T. Rowe Price (5.24%), and State Street (5.19%). However, Hyundai Motor Group, the largest shareholder, stipulated during the approval process by the Ministry of Science and ICT to be the largest shareholder of KT that it would "not interfere in KT's management, including the appointment of the CEO." As a result, it is virtually impossible for shareholders to exercise decision-making authority regarding the reappointment or appointment of a CEO. In effect, the National Pension Service functions as the largest shareholder.
◇ Is reappointment impossible due to foreign-friendly equity?
Some in the industry believe that with foreign ownership reaching 49% in KT, there may be a possibility for investors to exert more influence over management, including CEO appointments, beyond that of the National Pension Service. The trust in Kim's capabilities demonstrated through the previous stock price increase may foster supportive equity from foreign shareholders favoring reappointment. The foreign ownership percentage, which was 40% when Kim was appointed, has recently risen by 9 percentage points (P) to 49%. There are discussions that if the foreign-friendly equity surpasses the shares held by National Pension Service and Shinhan Bank (13.34%), Kim's reappointment may be feasible.
However, this may be practically impossible. This is because most of the shares held by foreigners are known to be investments made under the condition of 'non-intervention in management' for solely investment purposes. According to the industry, foreign shareholders such as T. Rowe Price and State Street, registered as major foreign shareholders, are also understood to have acquired their KT shares solely for investment purposes.
There is also a view that the new government will not intervene in Kim's reappointment. This is due to the promise made by the Democratic Party of Korea's policy committee during the reply process to the 'Proposal and Inquiry on Policy Tasks for the 21st Presidential Election' sent by the National Public Transport and Social Services Union that they would prevent political and non-expert parachute appointments for KT. According to the political and telecommunications sectors, there has been a precedent set during the Moon Jae-in administration where the government did not intervene in the appointment of KT's leadership. A prime example is Koo Hyun-mo, a former CEO chosen from the secretary of the previous chairman Hwang Chang-kyu, who was nominated during the Park Geun-hye administration.
To create a governance structure resistant to external influences, KT has institutionalized the decision-making process for selecting CEO candidates by establishing a committee composed of eight outside directors. Currently, the eight KT outside directors are the same as when they appointed Kim.
Ahn Jeong-sang, an adjunct professor at Chung-Ang University’s Graduate School of Communication, noted, "Foreign-friendly equity is difficult to consolidate into one entity since it is widely dispersed as minority shares and, with the majority being restricted from participating in management and limited to simple investment purposes, it is challenging to counter the National Pension Service. He added, "KT specifying the procedures and methods for appointing the CEO in its articles of incorporation will be the first step in building governance that is resilient to external influences." He further noted, "In the current system of recommending the CEO through outside directors, if the largest shareholder convenes a general meeting and replaces the outside directors, the intended effect may be lost."