Cape Industries faces proxy war over directors, dividends

South Korea’s ship engine parts maker Cape Industries is facing a proxy fight as its activist shareholders are opposing the firm’s excessive compensation to executives despite piling losses.

The investor group, led by KH Investment, has proposed a cut on Cape’s four executives pay to half -- 1.5 billion won ($1.3 million) maximum if combined -- and recommended candidates for outside directors and auditors. The alliance is also demanding the first dividend payout of the group in seven years.

KH Investment, a minority shareholder until September, became Cape’s No. 2 shareholder in January after its Chairman Kim Chong-ho. The alliance currently holds 14.37 percent srake, including its 9.81 percent voting rights.

The activist shareholders in February urged the matter to be discussed in Cape’s March shareholders meeting, in order to protect minority investors.

“Cape’s former and incumbent executives have taken high salaries and billion-won bonuses each year regardless of the company losses, whereas small shareholders have never been paid dividends since 2012, which violates their rights,” KH Investment said in a statement.

KH Investment cited Chairman Kim’s 1.4 billion won payment in the fiscal year of 2013 despite its 15 billion won net loss, as well as the 600 billion won payment to him for working for the first two months of 2017.

“We are looking to actively demand executive pay cuts and dividend payout in the March shareholders meeting,” it added.

The announcement triggered an upshot in Cape’s stock price on the Kosdaq bourse. Approaching the price ceiling in early morning trade, its share price closed 7.8 percent higher Tuesday.

Cape has been mainly devoted to manufacturing a cylinder liner -- an engine component for ships. For the first three quarters of 2019, its net income came to 5.8 billion won, up 28.9 percent on-year.

Holding a private equity firm Cape under its umbrella, it binged on acquisitions of companies including shoemaker Elcanto, brokerage house LIG Investment & Securities and CoAsia, of which Taipei-based CoAsia Electronics is an affiliate.

KH Investment said Tuesday it intends to review the past investment cases and consolidate its cylinder liner business.

The company is led by Kim Kwang-ho, who carried out buyouts of sanitary appliance makers Monalisa, Ssangyong C&B and units of Procter & Gamble Korea, as well as Korean units of food service firms Steff Houlberg and Pizza Hut. He exited from the aforementioned portfolio except for Pizza Hut Korea, which he acquired in 2017. 

By Son Ji-hyoung (consnow@heraldcorp.com)