SK Group’s future uncertain with Chey in jail

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SK Group’s future uncertain with Chey in jail

The absence of SK Group Chairman Chey Tae-won is likely to have a significant impact on the nation’s third-largest conglomerate, leading to what could potentially be the longest management vacancy since the group’s establishment.

The Supreme Court on Thursday confirmed a four-year prison sentence for Chey, who was convicted of embezzling corporate funds for personal gain.

The SK chairman was convicted by a lower court of embezzling 45.1 billion won ($42.2 million) in company assets from two SK affiliates for personal investments in stock futures and options in 2008. He has been imprisoned since January 2013, when he was found guilty by a lower court.

In the same ruling, the court also upheld a three-year and six-month jail term for Chey Jae-won, the chairman’s younger brother and the vice chairman of SK Group, who was found guilty of collusion.

It seems inevitable that without its chairman, the company will experience setbacks when enforcing important decisions, developing the group’s new business ventures and proceeding with its international projects.

SK Group expressed deep regret over the court’s ruling through an official statement and held an emergency meeting Thursday with the Supex Council, the conglomerate’s highest decision-making body and collective management system, following the ruling.

The conglomerate said that day that executives from SK’s affiliates had all expressed concerns during discussions over the course of new projects and investments undertaken in recent years.

“While each affiliate will carry on with its autonomous management, the six members of the Supex Council will make important decisions for the group,” a spokesman for SK Group said. “Large-scale investments and overseas business expansion that require the owner’s decision will be tabled for the time being.”

SK’s long-term plan to convene its current business, heavily dependent on the domestic market, including telecommunications to export-driven businesses such as energy and semiconductors, will also be disrupted.

For overseas resource development and mergers and acquisitions, large investments had traditionally been made according to the chairman’s business direction. And such rapid decision-making is also likely to be slowed down.

In addition, because SK’s global business is mainly comprised of resource development and construction, close cooperation between the owner and the top foreign officials is essential.

SK Group’s plan to develop new resources with the funds gained from selling its oil mining lot in Brazil in 2011 was postponed, for instance. Its expansion into Europe, led by Chey, has also been slow to progress; and the semiconductor business has faced a crisis because large-scale investment in the industry has stalled.

SK Group is set to minimize its management vacancies by strengthening Separate, But Together 3.0, a management organization made up of six committees among SK subsidiaries.

However, because of the difficulties involved in properly promoting global business and large-scale investments under the Separate, But Together 3.0 system, it is likely that Chey - who had been managing the group with his brother - could bring in other family members, an industry source said.

Some industry observers have also pointed out the possibility that the group could go through a major reshuffle to revitalize the conglomerate.

SKC Group Chairman Chey Shin-won, the cousin of Chey Tae-won, is the first pick to take over SK Group’s management. Chey Shin-won is the son of Chey Jong-gun, SK Group’s founder. Chairman of SK Innovation Kim Chang-geun is currently overseeing the management of SK Group, serving as the chair of the Supex Council.

SK Group’s performance dipped over the last year since Chey Tae-won has been in prison, and experts believe the chances of a massive reorganization are high.

Meanwhile, despite the risks, SK’s stock prices shot up 6.08 percent on Thursday and continued to rise yesterday to finish 0.26 percent higher. Market analysts are putting more weight on the positive effects of the company’s share buyback than the damages from the management vacancy.

Earlier on Wednesday, SK Holdings announced that it will repurchase 2.3 million shares of common stock worth 419.5 billion won ($393.5 million), intended to enhance shareholder value through share price stability.

According to SK, it will purchase the shares over 24 trading days, from Feb. 27 through May 26. Treasury stock will account for 18.81 percent.

“The issue of owner risk has long been the talk of the town in the market; it can no longer act as a bearish factor on stock prices,” said a local market analyst. “Rather, thanks to favorable supply through the large-scale share buyback, positive impacts are expected.”

SK last year reported a decline in its revenue as well as its operating profits. Revenue was down 6.5 percent year-on-year to 111.7 trillion won, while its operating profits tumbled more than 20 percent to 3.6 trillion won.

Net profit saw a steep loss, a 57 percent decline, of 1.1 trillion won.

BY kim jung-yoon [kjy@joongang.co.kr]

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