Hanjin chief's management control in jeopardy

Hanjin Group Chairman Cho Yang-ho enters the Seoul Southern District Prosecutors' Office in Yangcheon-gu Sept. 20 to answer questions on alleged embezzlement. / Korea Times photo by Shin Sang-soon

Home-grown activist fund vows to oust Chairman Cho Yang-ho

By Nam Hyun-woo

Hanjin Group Chairman Cho Yang-ho is facing challenges from a home-grown activist fund which aims to take managerial control of the country's largest aviation group away from him.

Grace Holdings, the second-largest shareholder in Hanjin's holding firm, Hanjin KAL, publicly threatened to oust Cho from the firm's board of directors in a shareholders' meeting in March.

Analysts say Cho could lose managerial control of Hanjin Group as the National Pension Fund (NPS) and other stakeholders may join hands with the activist fund at the next shareholders' meeting.

In addition, a series of legal troubles have engulfed the chairman and his family members over the past few years, which have created unfavorable public sentiment toward them, may encourage shareholders to vote against the current management, they said.

Grace Holdings said Thursday it has acquired a 9 percent stake in Hanjin KAL, which controls Korean Air, Jin Air and other affiliates, after purchasing a 4.03 percent stake a day earlier. The fund has become the No. 2 shareholder after Cho's 17.8 percent.

The fund is a special purpose company created by a private equity fund organized by Korea Corporate Governance Improvement (KCGI), which styles itself as an activist fund and goes after companies with weak governance structures.

In its regulatory filing, Grace Holdings said: "In the event of any future events related to the company's operations, multiple activities will be considered in accordance with the scope and methods allowed by the related laws."

It said those activities include the appointment or dismissal of executives, suspension of duties, merger and demerger, dividend policy and other major issues.

Analysts expect KCGI will attempt to control the board through a ballot battle against Cho and stakeholders friendly to him.

"Three out of seven Hanjin KAL board members will see their tenure expire March 31 next year, and KCGI will likely try to control the board in the March shareholders meeting," Daishin Securities analyst Yang Ji-hwan said.

"It will be about how much of a stake KCGI and Cho can secure, and it depends on minor shareholders who have a combined 40.36 percent. Given Hanjin Group has stirred national controversy with the owner's family's misbehavior, minor shareholders may delegate their rights to KCGI."

Yang added that KCGI is expected to sell Hanjin KAL's loss making assets, such as hotel and real estate properties, and exercise influence in managing Hanjin affiliates if it wins control of the board.

KB Securities analyst Kang Seong-jin expects any vote to hinge on the NPS and Credit Suisse Group, which hold an 8.4 percent stake and a 5 percent stake, respectively, as of Sept. 30. Both have announced their intention to not exercise any influence on the company's management.

Another factor threatening Cho's control is his trial for alleged embezzlement and breach of trust scheduled later this month.

The current rules ban a person from being an airline executive if they violated aviation related acts. However, the government earlier this week announced stronger rules expanding the scope to criminal laws, which include the charges raised against Cho.

The new rules, which will take effect from next year, will prohibit those who violated tax and customs laws from leading an air carrier. Cho is also under Korea Customs Service investigation over alleged trafficking and tax dodging.

"Depending on the ruling, Cho may lose his grip on Korean Air and other Hanjin affiliates," an industry official said.

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