Proposal to Shareholders

I ask my fellow shareholders to support the following proposals at the 45th General Meeting of Shareholders, to be held on March 25th, 2022, to improve Kumho Petrochemical’s long-term sustainable growth. I propose the following two resolutions:

Resolution 1. Dividend payout: KRW 14,900 per common share, 14,950 per preferred share

  • All shareholders deserve at least 30% of dividend payout ratio on consolidated basis.
  • However, given the cyclical nature, I regretfully offer to lower the dividend payout ratio to 21%. Meanwhile, I respectfully request company to retire existing 10% of treasury shares company already owned (10% out of 18%) by the end of this year. In this way the shareholders will benefit more.

Problems of Company Proposal

  • Company proposed dividend payout ratio on consolidated basis of FY2021 is 14%, a significant decrease from 20% FY2020.
  • Dividend payout should be on consolidated basis, because subsidiaries are accounting for about 50% of consolidated net profit.
  • Company’s proposal of KRW 150 billion share buyback only accounts for around 3% of outstanding shares. Also, despite the claim that the buyback is for cancellation, company has not given any timeline of the retirement of the shares.
  • Company has not shown any intention to cancel the existing 18% treasury share in this AGM.

Resolution 2. Appointment of the Two Outside Directors and Audit Committee Member

I here propose two outside directors candidates mainly for two purposes:

  • to supervise and help the Board to fulfill broken promises made in 2021 AGM; and
  • to enhance the independence and transparency of the Board

Failure of the Current Board of Directors

The Current Board of Directors have failed to fulfill their promises made in 2021 AGM, including:

  • Low dividend payout ratio compared to industry average and decreased from FY2020 payout ratio of 20% to 14% FY2021.
  • Failed to retire a significant amount of treasury shares; instead, 0.6% treasury shares were issued to OCI.
  • Failed to separate the role of Chair of the Board and CEO.
  • Management’s compensation is still excessive and seemingly compensation committee is not independent.
  • Capital has not been efficiently allocated to mid-to-long term growth initiatives.
  • Non-core assets have not been divested.
  • Kumho Resort was acquired at very high valuation.

Questionable nomination committee and incompetent new candidates

Lack of independence: Company’s nomination committee lacks independence, demonstrated by its bad track records.

Company's nomination committee consists of three members; Jin-Ho Chung, Jae-Kyung Lee and Do-Sung Choi1. In March 2019, Jin-Ho Chung has recommended Chan-Koo Park, who was under employment restriction and sanction due to his conviction of breach of trust, for reelection as an inside director.

New candidate related corporate scandals: Sang-Soo Park, a new outside director and auditor candidate proposed by the committee, was called to court as a witness of the SKC Chairman Sin-Won Choi's lawsuit2. Mr. Park was an outside director and chair of audit committee of SKC at the time. During his testimony, Mr. Park denied any responsibility and testified that he does not know the details as to why SK Telesis gave collateral-free loans to Ants Development. It is hard to believe that Mr. Park, who served as an outside director and auditor for 14 years at SKC, was acting independently working for the interest of public shareholders. It is questionable whether he was incompetent for the director job or he knowingly overlooked the situation, either way it makes him an unqualified candidate for Kumho Petrochemical. Evidenced by the lack of independence and incompetency of the new candidate proposed, the integrity and independence of the nomination committee are questionable.

Reasons for candidates on shareholder proposal

Unlike company’s outside director candidates, the two outside director candidates proposed by shareholder can help company in terms of:

  • They have Real Independence to make judgment and decisions that are good for both company and public shareholders.
    • Relationship with largest shareholder: None
    • Transactions with company in the past three Years: None
  • Mr. Yi previously was both audit and compensation committee member in AIA insurance. His extensive experience can help establish a concrete guideline to restructure the management compensation and governance rule.
  • Mr. Yi also has extensive experience in cross border M&As and JV establishments, which can help Kumho explore new growth engines.
  • Given Kumho Petrochemical is export driven company, both candidates who have lived and worked around the world will bring broad perspectives to company’s global businesses. Especially, professor Hahm's expertise in foreign exchange risk management will be valuable to the company.
  • Both candidates' willingness to communicate is an important factor to guide the board to make conscientious decision. Professor Hahm is always interacting with students and Mr. Yi with his consultant background is also open to exchange of ideas with others.

My proposal with qualified outside director candidates will enable Kumho Petrochemical to move one step closer to meet the expectation of the shareholders. With small but firm changes to the management, eventually we can resolve problems in the governance of company.

1. Based on quarterly report (November 15th, 2021)

2. The prosecution brought a charge against Chairman Sin-Won Choi of SKC for embezzlement and at the moment he was sentenced to 2 years and 6 months in prison and appealed to a higher court. In 2012 and in 2015, SKC participated in capital increase of SK Telesis by issuing new stocks and therefore sum of KRW 89.9 billion was funded. SK Telesis in return offered collateral-free loans (KRW 15.5 billion) to Ants Development, a private company owned by Chairman Choi. Ants Development couldn’t pay back the loan in time and caused substantial damage to SK Telesis and SKC.