Kickbacks and meddling“The way to make money for local construction companies from now on is to make inroads overseas. People in power in Latin American countries all want to build landmark skyscrapers. The Export-Import Bank of Korea and Korea Trade Insurance Corp. should do more to help local construction companies’ overseas ventures. The Japan Bank of International Cooperation, a public lender for investment and state guarantees, has invested 460 trillion won ($430 billion) overseas for the past five years. The Korean counterpart Exim Bank has spent one tenth of that amount.”
The words have been part of an address by Sung Wan-jong, chairman of Keangnam Enterprises when he was a representative of the ruling conservative party during a construction finance forum on Nov. 6 2012. He argued that policy financing needs to be expanded so overseas construction projects can generate jobs for young Koreans. Kim Jin-soo, then director of the corporate finance division of the Financial Supervisory Service, helped out. A creditor workout program was essentially to save the company, he said. He pledged that if any companies in the debt workout program run into bigger financial trouble or fail to spring recovery, creditor banks would be audited and punished for any negligence.
Sung’s company was deep in debt. It ran into a liquidity crunch when the Hanoi Landmark 72 high-rise tower buildings Keangnam had built with more than 1 trillion won did not sell as hoped due to a real estate slump in Vietnam. He might have been seeking more loans, but no banks would have paid any attention to a company in such poor state. Yet Keangnam was different. Its owner was a member of the assembly’s National Policy Committee to which the Financial Services Commission and Financial Supervisory Service report.
Keangnam went into the third workout program in October 2013 and received new bank loans of 630 billion won. Normally, when a company cannot be turned around through a restructuring program, it goes into court receivership. The largest shareholder would lose management rights. But Sung was able to keep his stake even when his company received two non-bankruptcy programs. Creditors did not cancel his shares. He received two presidential pardons under President Roh Moo-hyun. He was a rare case. Sung’s company mysteriously revived every time it went down like a zombie. One bank executive said everything having to do with Sung was beyond common sense.
Shinhan Bank, the main creditor bank to Keangnam, had been relatively independent from interference because the state had no stake in the bank. Shinhan made no exceptions during sweeping corporate restructuring following the financial crisis. When deemed to be without hope, the bank wrote off loans and dropped companies from its portfolio. It was among the first to notice something fishy about Moneual, an electronics appliance company that rose fast amid hype about it being a start-up jewel. But strangely, it went soft on Keangnam. It increased loans without demanding asset disposal or capital reduction. We can only suspect that arm-twisting had been involved.
The biggest issue at the National Assembly’s Policy Committee’s government questioning on Nov. 1, 2013, was the Tongyang Group crisis that rocked the financial sector and caused huge losses for individual investors when securities and commercial paper went sour due to the group’s financial troubles. Tongyang Group Chairman Hyun Jae-hyun and his wife, Lee Hye-kyung, who was the vice chairman, were summoned to the hearing. Despite having gone into court receivership and taking liquidation steps, the family withdrew corporate funds for themselves on top of fat paychecks and other forms of compensation. Yet Sung remained silent while others grilled the two. Instead, he called for a financial bailout. He said Korea Inc. and the country prospered in the 20th century from the seeds planted by former President Park Chung Hee and urged President Park Geun-hye to plant new seeds for growth in the 21st century, to help incite a kind of new Saemaeul Movement (the signature nationwide industrialization drive of Park Chung Hee in the 1970s). He asked the Financial Services Commission chairman to take extraordinary steps to help ease the liquidity crisis in the financial market.
The first seeds he referred to were overseas construction projects ? mainly in the Middle East in the 1970s and 1980s through a cheap Korean workforce. It was a farcical scene, but still not a laughing matter for creditor banks. I get the sinking feeling that the Keangnam debacle could release the specter of bureaucratic heavy-handedness as a result of 1997 financial crisis.
There has been a lot of criticism against revolving-door appointments under the incumbent government. State interference begins with meddling in corporate executive appointments. Unless the government keeps the temptation to control private finance at bay, the country’s financial industry has no future. Korea’s financial sector ranks, pitifully, at the bottom of the world ? 122th ? in financial sector integrity.
Ending the tradition of administrative meddling could be more imperative than uncovering the truth behind the allegations that politicians habitually received kickbacks from Sung.
JoongAng Ilbo, April 24, Page 30
*The author is an editorial writer of the JoongAng Ilbo.
by Cheong Chul-gun