COVER STORY Hoban's insatiable appetite: Group founder targets Korean Air

Kim Sang-yeol, founder and former chairman of Hoban Group, has built the company into one of Korea’s most aggressive investors, with his latest bet on Korean Air bringing Hoban’s Hanjin KAL stake nearly level with that of the airline’s controlling shareholder.

Hoban Group has so far amassed a 20.15 percent stake in Hanjin KAL, the parent company of Korean Air, putting it just 0.42 percentage point behind Hanjin Group Chairman Cho Won-tae and his related parties, which collectively own 20.57 percent.

That narrow gap puts Kim in a position to challenge the balance of power at Korea’s flagship airline — particularly if Korea Development Bank (KDB) decides to sell its 10.58 percent stake.

The state-run bank has yet to decide how to sell its stake in Hanjin KAL. The decision may determine who holds the upper hand in the management rights for the integrated airline that is scheduled to launch on Dec. 17 following Korean Air's takeover of Asiana Airlines.

Hoban has expanded far beyond its housing construction roots through a string of acquisitions and investments, including Taihan Cable & Solution and Seoul Shinmun Daily. Although Kim stepped down as chairman, his name remains inseparable from Hoban’s aggressive expansion strategy.

Hoban started joining the race to acquire the management rights for Hanjin KAL in March 2022 by buying 9.4 million shares, or 13.97 percent, from activist fund KCGI for 564 billion won ($420 million). Hoban has since continued accumulating shares to the current level by injecting around 878.2 billion won.

Hoban Group has disclosed that its investment in Hanjin KAL is intended "solely for investment purposes," and remained publicly silent on any plans to officially seek management participation.

Given Hoban Group’s continued accumulation of shares and the size of its investment, however, its explanation does not appear entirely convincing. Many market observers believe that seeking management participation may ultimately be part of Hoban’s core strategy.

Hoban has not launched a management challenge and did not oppose Cho’s reappointment as an inside director at Hanjin KAL’s shareholders’ meeting in March. But closing the stake gap with the controlling family to less than half a percentage point comes as an apparent management challenge to the current leadership of Korean Air.

The state-run bank received its 10.58 percent stake after injecting 500 billion won into Hanjin KAL in 2020 to support Korean Air’s acquisition of Asiana. KDB has no obligation to sell immediately after the two airlines' integration and has said it will consider its exit based on market conditions.

But the method of the sale could matter more than the timing.

If KDB sells its entire stake to Hoban, the firm’s ownership would jump to 30.73 percent. That would instantly turn Hoban into a much more formidable force and make it difficult to dismiss the group as merely a financial investor.

A fragmented sale would have the opposite effect. Selling the shares in blocks to institutional investors could dilute Hoban’s influence, while giving Cho more time to consolidate his own shareholder base.

Cho has powerful allies. Delta Air Lines owns 14.9 percent, while LX Pantos owns 3.83 percent.

Funds affiliated with Daishin Asset Management and Eugene Asset Management hold another 9.06 percent combined. Chances are their holdings can give Cho a substantial cushion in any shareholder contest.

Japan Airlines (JAL) has also entered the race. JAL announced a strategic partnership with Korean Air earlier this month and acquired shares in Hanjin KAL, although the amount and purchase price were not revealed.

That could prove significant if the ownership battle intensifies. JAL has not been confirmed as a voting ally of Cho, but its arrival gives the Hanjin side another potential strategic partner just as KDB’s exit looms.

“Given that Cho’s friendly shares currently far exceed Hoban Group’s stake, the latter is unlikely to significantly affect management control of Hanjin KAL,” an industry official said.

“However, the key will be whether Hoban Group moves to acquire additional shares or changes the stated purpose of its investment in Hanjin KAL.”

Kim has several options at his disposal. He could buy KDB’s stake, and challenge Cho for a role in joint management. Another possible scenario is that he may negotiate a sale of Hoban’s stake at a premium, even if the company fails to gain management control.