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Korea Ratings hit for paying 'excessive' dividend to Fitch


Korea Ratings CEO Kim Ki-bum
Korea Ratings CEO Kim Ki-bum
By Park Jae-hyuk

Korea Ratings is embroiled in an internal conflict after the domestic credit rating agency decided to pay huge dividends to its shareholders, including the largest, Fitch Ratings, which holds a 73.55 percent stake, industry officials said Wednesday.

On Feb. 6, the Korea Ratings board agreed to pay out 38 billion won ($32 million) to shareholders.

The amount is almost double the company's net income in 2018.

Considering the agency posted a 23.1 billion won net profit during the first three quarters of 2019, its dividend payout ratio is estimated at nearly 200 percent.

Fitch will be able to earn 28 billion won as a result.

Korea Ratings employees began to protest the board's decision to use company cash to benefit the American shareholder, instead of using it to invest in long-term growth.

The employees were more enraged, because management carried out large-scale restructuring in 2018 which included the dismissal of several high-ranking employees.

"We have been asking the Financial Services Commission (FSC) whether the recent dividend payout is illegal or not," Kim Seok-ho, a Korea Ratings employee said.

"The decision will be finalized in late March at the forthcoming general shareholders meeting. We will go all out to prevent the excessive dividend payout before then."

In March 2017, the financial authorities tightened eligibility requirements for the largest shareholders of credit rating agencies, so as to avoid side effects from excessive dividend payouts.

"Due to the influence of largest shareholders, credit rating agencies have used their profits for dividend payments, not reinvestment," the FSC said at that time.

"We tightened the regulations as the largest shareholders of credit rating agencies have been criticized for inflating ratings, because they have induced agencies to maintain high credit ratings to maximize their operating profits."

In 2015, the average dividend payout ratio of local credit rating agencies was 81.3 percent, four times higher than the average payout ratio of global agencies.

Korea Ratings has had about a 60 percent dividend payout ratio over the past few years.

"We performed well last year and we have accumulated huge internal reserves over the past few years, so we considered we are capable of paying large dividends," a Korea Ratings official said.



Korea Ratings CEO Kim Ki-bum
Korea Ratings CEO Kim Ki-bum
By Park Jae-hyuk

Korea Ratings is embroiled in an internal conflict after the domestic credit rating agency decided to pay huge dividends to its shareholders, including the largest, Fitch Ratings, which holds a 73.55 percent stake, industry officials said Wednesday.

On Feb. 6, the Korea Ratings board agreed to pay out 38 billion won ($32 million) to shareholders.

The amount is almost double the company's net income in 2018.

Considering the agency posted a 23.1 billion won net profit during the first three quarters of 2019, its dividend payout ratio is estimated at nearly 200 percent.

Fitch will be able to earn 28 billion won as a result.

Korea Ratings employees began to protest the board's decision to use company cash to benefit the American shareholder, instead of using it to invest in long-term growth.

The employees were more enraged, because management carried out large-scale restructuring in 2018 which included the dismissal of several high-ranking employees.

"We have been asking the Financial Services Commission (FSC) whether the recent dividend payout is illegal or not," Kim Seok-ho, a Korea Ratings employee said.

"The decision will be finalized in late March at the forthcoming general shareholders meeting. We will go all out to prevent the excessive dividend payout before then."

In March 2017, the financial authorities tightened eligibility requirements for the largest shareholders of credit rating agencies, so as to avoid side effects from excessive dividend payouts.

"Due to the influence of largest shareholders, credit rating agencies have used their profits for dividend payments, not reinvestment," the FSC said at that time.

"We tightened the regulations as the largest shareholders of credit rating agencies have been criticized for inflating ratings, because they have induced agencies to maintain high credit ratings to maximize their operating profits."

In 2015, the average dividend payout ratio of local credit rating agencies was 81.3 percent, four times higher than the average payout ratio of global agencies.

Korea Ratings has had about a 60 percent dividend payout ratio over the past few years.

"We performed well last year and we have accumulated huge internal reserves over the past few years, so we considered we are capable of paying large dividends," a Korea Ratings official said.


Park Jae-hyuk pjh@koreatimes.co.kr


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