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(LEAD) (News Focus) Hanjin Group chief demise accelerates leadership change, but uncertainties lie ahead

Industry 15:50 April 08, 2019

(ATTN: UPDATES with more details in paras 15-18)
By Lee Joon-seung

SEOUL, April 8 (Yonhap) -- The unexpected death of logistics conglomerate Hanjin Group chief Cho Yang-ho could not come at a worst time for the country's 14th largest conglomerate, as it has been dogged by a series of misdeeds by founding family members and faces mounting pressure to change its leadership.

All eyes are on how the conglomerate leadership change will take place, but analysts said there will not be any drastic overhaul of the ownership structure. Rather, it may be reshaped in such a way that Cho's only son, Cho Won-tae, will strengthen his grip on the conglomerate.

Right after Cho's death, Hanjin said an emergency management plan will be set in motion, with the junior Cho, now president of flagship Korean Air Lines Co., leading the group's key management decisions.

"Everything is fluid, but (Cho's) death will likely lead to the heir taking over the reins, which has already occurred to some extent," a business community insider, who declined to be identified, said.

The business group has Korean Air Lines, the country's No. 1 flag carrier, and other affiliates under its wing.

Late Hanjin Group Chairman Cho Yang-ho (Yonhap)

The late Cho had already distanced himself from various responsibilities in the wake of numerous scandals that raised speculation about change within the chaebol, or family-run conglomerate.

Just two weeks ago, he was stripped of his board membership at Korean Air Lines in a voting showdown by shareholders, a rare and landmark event for the country's conglomerates.

Analysts said the younger Cho may have to resolve some sticky problems to take over the helm.

First, he does not have the extensive experience of his father and was only named Korean Air CEO in January 2017. He may find himself being opposed by workers at Korean Air and even shareholders, who have been openly critical of the way the family has run the company over the years.

It was partly due to this internal uproar that the country's pension fund rejected the motion for Cho's reinstatement on the airline's board.

Adding to this, the younger Cho's succession could be more complicated. The children of the late chairman are set to inherit the business, but it remains to be seen how they will pay the hefty inheritance tax.

Analysts said the founding family members will either sell part of their stock holdings or offer them as collateral for borrowing.

"In the case of Hanjin, the late chairman held a large percentage of shares so the passing on of wealth may pose particular challenges for the transition of power taking place within the chaebol family," Lee Jong-hyun, a researcher at Meritz Securities Co., said. "The conglomerate may find itself at a disadvantage vis-a-vis (local equity firm) KGCI and other disaffected shareholders if the inheritance issue is not handled carefully."

Cho Yang-ho held 17.84 percent of Hanjin KAL Corp., the holding company of the entire group, while his son only has 2.34 percent.

Shares held by the late chairman in Hanjin KAL, Korean Air and Hanjin that include both common and preferred stocks, are estimated to be worth some 360 billion won (US$314 million). If his family has to pay a 50 percent inheritance tax, the total can reach 178.9 billion won, which may not be easy to come by.

Cho's eldest daughter, Hyun-ah, and her sister Hyun-min currently control 2.31 percent and 2.3 percent of the holding company, respectively.

"The family can come up with the necessary funds either by borrowing or by increasing dividends they receive with the latter being a option they may pursue," said Park Gwang-rae, an analyst at Shinhan Investment Corp.

The Cho family whose combined holdings in Hanjin KAL and Hanjin are worth 121.7 billion won, should be able to borrow upward of 61 billion won that can be used to pay the inheritance tax.

The local court, meanwhile, announced that it will halt all legal be proceedings related to the late chairman. State prosecutors claimed that Cho caused 27 billion won in damages to the group through embezzlement and breach of trust.

Prosecutors said they too will stop all investigations against Cho in the wake of his death.

In addition, court proceedings involving Cho's wife and Hyun-ah will be pushed back in light of the news.

The lobby of Korean Air's main office in downtown Seoul (Yonhap)


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