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Paul Singer

The US hedge fund Elliott Management is demanding over 700 billion won ($US656.6 million) in compensation from the South Korean government for losses it claims resulted from the administration’s improper involvement in the 2015 merger of Samsung C&T and Cheil Industries.

On May 11, the Ministry of Justice disclosed a copy of a four-page note of intent for arbitration received from Elliott on Apr. 13. The note showed Elliott claiming damages of at least US$670 million (716.9 billion won).

It also called for “interest, costs and other such relief as a tribunal deems appropriate,” the ministry added. While Elliott did not indicate its concrete basis for calculating the figure, analysts are predicting the claim could amount to over 800 billion won ($US750.4 million) once interest and other costs are factored in.

In its note of intent, Elliott accused former President Park Geun-hye and Minister of Health and Welfare Moon Hyung-pyo of pressuring the National Pension Service to agree to the Samsung merger against normal procedures after accepting bribes from Samsung, resulting in damages to the hedge fund, which was opposed to the merger.

Elliott, which owns a 7.12 percent share of Samsung C&T, expressed opposition ahead of the merger in July 2015, claiming the ratio of 0.35 Cheil Industries shares to one Samsung C&T share was unfair.

At the time, the international proxy advisory firm ISS calculated a suitable merger ratio of 0.95 (Samsung C&T) to 1 (Cheil Industries). On this basis, some predicted Elliott would demand damages of up to the 300 billion won ($US 281.4 million) range – but the company’s actual demand was over twice as high.

Elliott also charged violations of the South Korea-US Free Trade Agreement’s Article 11.3 on “national treatment,” which states that the South Korean government must accord domestic and foreign investors equal treatment, and Article 11.5 on “minimum standard of treatment,” which stipulates treatment “in accordance with customary international law.”

A notice of intent for arbitration represents a preliminary stage in investor-state dispute settlements (ISDS) according to the KORUS FTA, in which an investor confirms its intent to seek arbitration before officially initiating action against the other side with the International Centre for Settlement of Investment Disputes (ICSID). An official arbitration claim may be submitted once 90 days have elapsed after receipt. The Ministry of Justice planned to consult the opinions of the relevant ministries before devising a plan of response, including the Ministries of Strategy and Finance; Foreign Affairs; Trade, Industry and Energy; and Health and Welfare. It has also requested that Elliott disclose its basis for calculating the amount of damages claimed.

By Hyun So-eun, staff reporter

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