Hedge fund demands info on Hanjin’s $136 million loans

Activist hedge fund Korea Corporate Governance Improvement (KCGI) sued to get access to Hanjin Kal’s records of big loans taken out late last year, increasing pressure on Hanjin Group to shake up its management.

Hanjin Kal said in a regulatory filing Wednesday afternoon that Grace Holdings, a subsidiary of KCGI, asked the Seoul Central District Court on May 29 to allow it access to documents about loans of 160 billion won ($135.5 million) approved by the company’s board last December.

Hanjin Kal is the holding unit of Hanjin Group and affiliates such as Korean Air.

According to the filing, the hedge fund is seeking documents that will detail how the loans were used.

KCGI, the second-largest shareholder of Hanjin Kal, previously argued that the loans were unnecessary. KCGI holds a 15.98 percent stake in Hanjin Kal, the most after Chairman Cho Won-tae and his relatives’ 28.93 percent. Since accumulating the stake in the company last year, the hedge fund has pressed the group to make big changes.

“We are curious as to why 160 billion won with interest rates of 4 percent was borrowed and 100 billion won was placed in a savings account that has an interest rate of around 1 percent,” said Shin Min-seok, vice president of KCGI, during the Hanjin Kal shareholder meeting in March.

After the loans, Hanjin Kal’s assets rose to over 2 trillion won, which led to the creation of an audit committee instead of a single auditor under Korea’s business laws.

That limited KCGI’s influence in the company.

When a company appoints an auditor, the majority shareholder is restricted to 3 percent of the votes, regardless of the amount of shares they hold, in order to restrict influence. But when an audit committee is created, all shareholders are capped at 3 percent of the votes.

Hanjin Kal said in the filing that it will respond accordingly following legal procedures.

The hedge fund is calling for changes to Hanjin Group’s management, which is largely controlled by relatives of former Chairman Cho Yang-ho, who died last April.

In March, KCGI tried to nominate outside directors to the holding unit’s board, only to be blocked by a court. It said the hedge fund had not owned its shares in the company for the required amount of time.

The Wednesday disclosure also follows a regulatory filing made by the holding company a day earlier that said KCGI applied to the Seoul Central District Court for an inspector to review the appointment process for a new chairman and a severance payout given to the family of the late Chairman Cho Yang-ho.

Cho Won-tae, son of Cho Yang-ho, was appointed chairman after his death.

According to the filing, KCGI asked whether the appointment of the new chairman followed proper procedures.

As for the severance package given to the Cho family, KCGI requested disclosure of the exact amount.

Other activist groups have also questioned the severance package.

Preferred shares of Hanjin Kal rose 18.6 percent on Wednesday.

BY CHAE YUN-HWAN [chae.yunhwan@joongang.co.kr]