(Bloomberg) -- A battle between shareholders of South Korea’s most valuable business group is set to test the nation’s commitment to enhance corporate returns and valuations.

The clash will take place on Friday at the annual general meeting of Samsung C&T Corp., which serves as the holding company of the Samsung Group. Activist investors are demanding the company deliver higher shareholder returns than it has proposed, and proxy advisory firms Institutional Shareholder Services Inc. and Glass Lewis & Co. have advised institutional funds to back their case.

The construction firm, which is controlled by Korea’s richest family, is unlikely to cave in to the pressure although such a move would signal its resistance to the “Corporate Value-up Program” that is one of President Yoon Suk Yeol’s signature policies. Other family-controlled big businesses or chaebol are likely to monitor the outcome of the gathering as they weigh their next course of action in dealing with shareholder demands.

Billionaire Jay Y. Lee’s family and allies control about 40% of Samsung C&T. Activist funds including City of London Investment Group Plc and Whitebox Advisors LLC have a combined 1.46% stake, although they’re expected to win the support of foreign shareholders including the California Public Employees’ Retirement System. 

Investors will also be watching the decision of the National Pension Service, which is the largest investor in Korea’s stock market and the holder of a 7% stake in Samsung C&T.

“If there’s a high proportion of that minority, that will be a really strong signal of dissatisfaction by the minority investors on the current path of the company,” said James Smith, chief investment officer of Palliser Capital UK Ltd. “If there’s a change in terms of value up at Samsung, it sets a really great precedent for other companies.” 

Palliser, which has a 0.62% stake in Samsung C&T, estimates corporate reforms in the company may unlock as much as $25 billion in value.

Korea Discount

Last month, the company urged shareholders to vote against the activist investors’ request for a payout of 4,500 won per common share and for 500 billion won ($380 million) of share buybacks, saying that would pose a “burden on the management.” The demands would also limit the company’s ability to secure investment resources for long-term growth, Samsung C&T added.

The company is the largest shareholder of Samsung Biologics Co. and a key stakeholder of Samsung Electronics, Asia’s biggest electronics firm. But its shares have lagged the surge in its main assets.

The combined market value of Samsung C&T’s stake in five listed group entities has increased by 14 trillion won since early 2018 while its market value fell by more than 3 trillion won during that period, ISS said.

“It’s a company that is the typical case of Korea Discount,” said Cha So-Yoon, a fund manager at BNK Asset Management Co. in Seoul. “While Samsung Biologics and Samsung Electronics shares jumped several fold, Samsung C&T hasn’t gained much.” 

A representative for Lee declined to comment. A Samsung C&T spokesperson said the gap between holding companies’ market cap and net asset value is common among many Korean holding firms and “these structural problems are difficult to solve in the short term.”

“Samsung C&T will review closely its policy based on the government’s Value-up Program and expects to have a chance to communicate with shareholders and investors about the results of the policy review when guidelines are released,” the spokesperson said.

Read More: What’s The ‘Korea Discount’ and Why Is It a Problem?: QuickTake

President Yoon is intent on resolving the so-called Korea Discount as part of efforts to narrow the wealth gap and stimulate growth. The government is pushing companies to improve valuations through better management practices by offering incentives and tax benefits under the Corporate Value-up Program.

--With assistance from Yoolim Lee.

(Updates with company’s comment in 13th paragraph)

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