VIP Asset Management said on the 27th that it has secured more than 5% equity in LOTTE Rental and will take shareholder action to raise the corporations' value.
While maintaining its opposition to LOTTE Rental's ongoing third-party allotment paid-in capital increase, VIP Asset Management disclosed what is effectively a shareholder letter demanding that, if the capital increase is unavoidable, spare funds be used to enhance shareholder value.
That morning, LOTTE Rental disclosed that VIP Asset Management had acquired 5.2% equity. The purpose of the holding is "general investment." VIP Asset Management said, "Unlike a simple investment purpose, general investment is used when shareholders actively demand measures such as expanded dividends or share buybacks and cancellations."
Previously, as a minority shareholder in LOTTE Rental calling for the withdrawal of the paid-in capital increase, VIP Asset Management argued, "Because of concerns about equity dilution, LOTTE Rental's share price has risen only 9% compared with the start of the year, significantly underperforming the KOSPI's 65% gain over the same period," adding, "The capital increase remains unnecessary."
VIP Asset Management viewed LOTTE Rental's cash capacity as sufficient. It said most urgent funding needs, such as building infrastructure for new businesses cited as reasons for the capital increase, have largely been resolved; operating profit is steadily growing; and the liability ratio is lower than the industry average. If the capital increase is completed, small shareholders will experience equity dilution reaching 20%.
However, it viewed raising the corporations' value as more urgent than a dispute over the capital increase. It demanded that, if the capital increase is unavoidable, surplus cash, including funds remaining after addressing issues such as early redemption of corporate bonds, be used first to compensate for the diluted shareholder value.
In addition, it demanded swift implementation of the goal released in September last year of a "shareholder return ratio of 40% or more," and that when establishing a shareholder return plan, the company prioritize share buybacks and cancellations over dividends. It noted that in a phase where the share price is significantly undervalued relative to the corporations' intrinsic value, prioritizing share buybacks and cancellations over cash dividends is more effective.
Lastly, it called for a par value reduction dividend using additional paid-in capital. LOTTE Rental currently holds about 670 billion won in capital surplus, so if it is transferred to retained earnings and used for a par value reduction dividend, a tax-exempt dividend would be possible.
Kim Min-guk, CEO of VIP Asset Management, said, "Share buybacks and cancellations using surplus cash after the capital increase are a plan that can benefit all shareholders, including not only the new major shareholder but also long-term shareholders who bought at the offering price of 59,000 won and are incurring losses, employees who invested in the employee stock ownership plan, and institutional investors who invested trusting the Value-Up disclosure."