Taekwang criticized for aiding Heungkuk Life Insurance
Heungkuk Life headquarters in Seoul / Yonhap
By Kim Hyun-bin
Taekwang Industrial has been criticized for its controversial move to provide 400 billion won ($305.6 million) to the troubled Heungkuk Life Insurance, which is owned by its majority stakeholder Lee Ho-jin, former chairman of Taekwang, according to industry officials Tuesday.
Minority shareholders and civic groups are calling on Taekwang Industrial to withdraw from the discussions, calling the move a breach of trust as the company has no affiliation with the cash-strapped life insurer.
The company is scheduled to hold a board meeting Wednesday to approve funding for Heungkuk Life through a paid-in capital increase of 400 billion won.
Former Taekwang Chairman Lee Ho-jin
Truston Asset Management sent a certification of content to the directors of Taekwang Industrial, Tuesday, urging them to make independent decisions that put the company's interests before the majority shareholder's.
"I understand that the agenda related to participation in the paid-in capital increase of 400 billion won promoted by Heungkuk Life will be discussed at the Taekwang Industrial Board of Directors meeting scheduled for Dec. 14," Truston Management said. "We sent a certification of contents urging the board of directors to make a fair decision."
In addition, Truston Asset is reviewing strong legal measures as it owns a 5.8 percent stake in Taekwang Industrial.
"Directors who agreed to this capital increase will be subject to criminal punishment pursuant to Article 624-2 of the Commercial Act, and Taekwang Industrial could also be fined under Article 634-3 of the Commercial Act. We will take legal action, including holding directors accountable,” Truston Asset added.
The Solidarity for Economic Reform also said there are many views in the market that Taekwang Industrial will participate in the capital increase of Heungkuk Life for the benefit of the controlling shareholders including the former Taekwang chairman, rather than for the company's sake, adding that it is inappropriate.
On Dec. 9, Heungkuk Life repaid new capital securities worth $500 million with internal funds. As a result, its risk-based capital (RBC) ratio, which was 157.8 percent at the end of June, is expected to fall below the 150 percent recommended level by financial authorities. The reason behind Taekwang Industrial's efforts to provide financial support is to raise the RBC ratio.
Shareholders of Taekwang Industrial and civic groups are resisting the push for paid-in capital support for Heungkuk Life. Concerns are also being raised about a breach of trust in attempting to resolve the current situation as Taekwang has no stake in Heungkuk Life, and doing so could hurt the company's shareholder value.
Heungkuk Life does not have a direct equity relationship with Taekwang Industrial and is evaluated as a private company. Lee holds 56.30 percent of the insurer's total shares, and he and his relatives together hold an 81.95 percent stake. The remaining shares are owned by affiliates of Taekwang Group, including Daehan Synthetic Fiber (10.43 percent), Ilju Academy and Culture Foundation (4.70 percent) and TRN (2.91 percent). Taekwang Industrial does not hold any shares of its own.
“Taekwang Group plans to participate in Heungkuk Life Insurance's capital increase centering on its parent company, Taekwang Industrial, to meet social expectations and resolve the financial crisis and restore market trust,” a Taekwang Industrial official said. “Factors that interfere with legitimate decision-making by the board of directors, such as witch-hunting criticism of the group owner, attempts to contact members of the board of directors, and rumors of legal action. In particular, media play by external institutions and some shareholders (Truston Asset Management) is not helpful in making rational business decisions.”