Yoon Seok-geum, chairman of the troubled Woongjin Group, is a living legend among salaried workers here. Starting as a salesman of Britannica Encyclopedia 32 years ago, Yoon has built up the nation’s 31st-largest conglomerate which now has $10 billion in assets and 14 subsidiaries engaged in home-study materials, water purifiers, construction and energy sectors. He represents another rags-to-riches story and a victory for free-market capitalism.
It was regrettable in this regard that the group’s two core units, Woongjin Holdings and Kukdong Construction, filed for court receivership, similar to bankruptcy protection in the United States, Wednesday.
Sympathy turned to antipathy, however, once people learned how the once-promising corporate group drove itself to near dismantlement through diversification beyond its capacity, and what Yoon did at critical junctures.
Trouble began when Yoon bought the building company paying 660 billion won, nearly twice the optimal price, in 2007 just prior to the breakout of the Lehman Brother’s fiasco, from Lone Star, a Texas-based private equity fund. Its subsequent acquisition of a savings bank dealt an additional blow. What forced Yoon to make these untimely and unwise moves was his ambition to emerge as another chaebol, complete with construction and financing arms.
Many Koreans may be experiencing a sense of deja-vu, because Woongjin’s collapse reminds them of the nightmare of the 1997-98 Asian financial crisis, during which 16 family-controlled conglomerates took the same course, starting with steelmaker Hanbo. More disappointing is that like 15 years ago, the system ― financial supervisors, creditors, stock market analysts and even rating agencies ― failed, or neglected, to catch the looming collapse, which is why some cynics are calling Woongjin’s fall their joint work.
At the end of the day, the banks and nonbank lenders are left holding the bag of up to 3.3 trillion won of loans, not backed with sufficient collateral and prone to end up as bad debts.
No less lamentable is an egregious lack of corporate ethics on the part of Yoon, once the role model of many wage earners, and other large shareholders. The chairman deserves criticism for not doing his best to avoid the filing of bankruptcy protection, mainly to remain in the control of the group’s holding company. His wife and large shareholders have disposed of their equity in the group, handing losses to a number of small, innocent investors.
The regulatory agency must investigative these suspicions thoroughly to prevent any more cases of corporate demise for their owners’ survival.
Woongjin’s case should serve as an occasion for financial policymakers and regulators to check their crisis-monitoring system from the ground up. This is no time for complacency given the dire economic situations here and abroad. A small hole can destroy a dam.