Hanjin bows to investor pressure

Hanjin Group on Wednesday decided to sell off unprofitable assets like the land it holds in Songhyeon-dong, next to Gyeongbok Palace, central Seoul, and increase dividend payouts in response to a recent push by major shareholders to improve dwindling profits and corporate governance.

Korean activist fund Korea Corporate Governance Improvement (KCGI) and the National Pension Service, which are the second and third largest shareholders of Hanjin’s de facto holding unit Hanjin Kal, have openly demanded the group amend its management plans ahead of a shareholders meeting scheduled in March.

In a broad five-year plan released Wednesday, the company said it will improve its business performance and ink 22 trillion won ($19.5 billion) in sales revenue and 10 percent in operating profit to sales ratio by 2023. As the group projects its 2018 sales to be around 16.5 trillion won, it needs to grow an average 6.2 percent per year to accomplish the goal. The projected operating profit to sales ratio for last year is 6.1 percent.

To improve sales, the conglomerate, which controls the country’s largest full-service airline Korean Air, said it will invest in the latest aircrafts, develop new flight routes and increase partnerships with other airlines to bolster its global presence.

The conglomerate will also sell off unprofitable assets, like 36,642 square-meters (9 acres) of land it owns in Songhyeon-dong, central Seoul, this year. The group had planned to build a hotel there but the plan fell through.

As for Paradise Hotel in Jeju, another poor performing asset, Hanjin plans to attract outside investors and redevelop it into a high-end leisure facility linked with its Seogwipo Kal Hotel, also in Jeju. The group, however, said it will sell the hotel if the value reaped from redeveloping it is smaller than selling it off.

To increase shareholder benefits, Hanjin Kal said it is considering paying out 50 percent of last year’s net profit as dividends and gradually expanding payouts. In 2017, it paid out 3.1 percent of its net profit as dividends.

Hanjin group released plans to improve its corporate governance as part of its five-year plan.

It will establish an auditing committee for both its de facto holding company Hanjin Kal and land logistics affiliate Hanjin Transportation.

For its holding unit, the group said it will appoint all three members of its auditing committee from outside directors to add objectivity. It will also add one more outside director to Hanjin Kal’s board, taking the number to four. In total there will be seven members of the board.

The group will also add a committee responsible for the selection of outside directors. An organization to oversee internal accounting will also be established inside Hanjin Kal.

The announcement was made roughly half an hour after the Korean stock market closed.

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]