Cho’s farceThe difference between Hyundai Motor Group and Hanjin Group was obstinacy. The one that stubbornly resisted prevailed, and the one that gave in became the ultimate loser.
The container shipping industry has long been in choppy waters. The government and financial lenders two years ago chose the easy way of pushing the troubled shipping lines into the courts of the family-run conglomerates. Hanjin Shipping was dumped on Hanjin Group and Hyundai Merchant Marine on Hyundai Motor Group.
Hyundai Motor Group mercilessly turned away its shipping affiliate. Hanjin Group Chairman Cho Yang-ho, though, was softer. He defied strong protests from other managing directors and offered to take the debt-ridden shipping line off the hands of his sister-in-law, who was running the company at the time. He dug into the coffers of Hanjin units to inject over 1.2 trillion won ($1 billion) into the cargo carrier.
But it was like pouring money into a bottomless pit. The group’s flagship carrier, Korean Air, ran up losses because of its sister company’s deficit, even when it was making multimillion-dollar profits. Hanjin Shipping was teetering on the brink of disaster, and Cho could not let the airline go down as well. He must be hitting himself for having been too mushy.
Cho pulled out 40 billion won from his own pocket to help Hanjin Shipping keep up its delivery commitments after its vessels were turned away from international ports when the company was placed under bankruptcy protection. He was more or less arm-twisted by the government to cough up personal assets. It had bankers threaten Korean Air with loan restrictions if it did not chip in to help in the liquidity crisis. The more the government came under fire for being unskilled in corporate restructuring, the harder it landed on Hanjin.
The president also intervened. Park Geun-hye publicly criticized the group for doing too little and warned that its moral hazard and lack of responsibility would not be condoned. A warning from the head of state has different weight than that coming from senior government officials. Cho reportedly turned white upon hearing the president’s blunt warning. He pleaded to the board of Korean Air to approve rescue funds of 60 billion won for the shipping company.
The board hurriedly held a meeting on Sunday to rubber-stamp the check. But the plan was strongly opposed by outside directors fearing they would be implicated for breach of trust if they agreed to fund a doomed company. They have seen it happen before. Hanwha Group Chairman Kim Seung-youn went to prison in 2012 for endorsing financial support to an ailing unit. They, too, could face multibillion-won fines if they are sued by investors.
Korean Air has been warned by rating agencies that its creditworthiness will be at risk if it funds Hanjin Shipping. The government is largely at fault for building the crisis. As soon as Hanjin Shipping was placed under court receivership, the Financial Services Commission said it would have Hyundai Merchant Marine acquire profitable assets from Hanjin Shipping. It more or less pronounced the company’s insolvency. One outside director of Korean Air said corporate lawyers have warned that the directors will be held accountable for breach of trust if they agree to a plan that helps a company headed for insolvency.
But there are ways out to solve the conundrum in rescuing the sinking shipping line. The outside board members of Korean Air could all resign and make room for pro-government officials who would not fear punishment for embezzlement. The president could give her word that they will not be found accountable. After all, the law and principles have already long been ignored.
What’s important first is to put the crisis in order. The minority shareholders of Korean Air will likely file lawsuits. The president may have to pay her price, too. If not, Cho must entirely take the fall. He must either risk going to jail for bailing out Hanjin Shipping or face a vengeful penalty from authorities. Either way, he is stuck. It is a pity that such a farce is being played out in a trade powerhouse like ours.
JoongAng Ilbo, Sept. 22, Page 34
*The author is an editorial writer for the JoongAng Ilbo.