[Active Volcano Hanjin Family] The Group's Control Raised Equally by Three Siblings (Part 1)

Will the rift within the Hanjin Group family be sealed as it is? Although a reconciliation atmosphere was created for the greater cause of maintaining management rights, realistic adjustments of interests for peaceful family co-management have not yet been made. Without mutually acceptable give-and-take, the rift can resurface at any time. Everyone knows that if they scatter, they all perish together, but perfectly mending a broken plate is no easy task. It is also not easy to distinguish between external allies and adversaries. KCGI, Delta Air Lines, and Bando Group continue to buy shares of Hanjin KAL while calculating their moves. They may currently be on our side, but they could turn around and reveal their claws at any moment. The National Pension Service and many individual investors watching the situation are weighing which side to take. The third generation of the Hanjin family stands at a turning point on whether they can maintain group control and management rights across three generations. We examine the process through which they secured control over the Hanjin Group, the current situation, future variables, and assess whether the sibling co-management system can be sustained long-term.

[Asia Economy Reporter Lim Jeong-su] Chairman Cho Won-tae of Hanjin Group, former Korean Air Vice President Cho Hyun-ah, and Executive Director of Hanjin KAL Cho Hyun-min (Emily Jo), the three siblings, have secured shares in major Hanjin Group affiliates in nearly equal proportions without bias. Although the youngest executive director's share expansion temporarily slowed due to an 8-9 year age gap with her older sister (Cho Hyun-ah) and brother (Cho Won-tae), the pace of increasing shareholding was continuously aligned.

This is evaluated as the only succession solution that the late Chairman Cho Yang-ho could choose. A business circle official said, "After the split among the four siblings and the intensified land-grabbing battles, government pressure on the governance structure, difficulties in securing succession funds for the three siblings, and nearly a decade of Korean Air's poor performance, it would have been difficult to transfer shares to one side alone," adding, "As a result, this became the root cause of the fraternal division that followed."

◇Share Transfer of Korean Air During School Days...The 'Seed' of the Three Siblings' Group Control

The starting point for the three siblings' expansion of group control was Korean Air shares. In the late 1990s, upon receiving shares of Korean Air, Chairman Cho held 0.3%, while sisters Hyun-ah and Hyun-min each held 0.2%. These shares became the seed for the three siblings to secure group control after Hanjin Group transitioned to a holding company system. At that time, siblings Hyun-ah and Won-tae were in their early 20s, and the youngest, Hyun-min, was in her late teens. All three siblings were still students, before joining group affiliates. Former Vice President Cho joined Korean Air in 1999, and Chairman Cho joined Hanjin Information & Communications in 2003, marking their first steps into the group.

Subsequently, the three siblings increased their Korean Air shareholding by purchasing additional shares on the market. By 2009, each sibling's Korean Air shareholding had increased equally to 0.9%. An investment banking (IB) industry official analyzed, "They increased their Korean Air shares by about 0.6-0.7% over roughly ten years since the initial share transfer," adding, "It likely took time to secure funds for the succession, which delayed share acquisition."

In 2013, just before the transition to a holding company system, the three siblings received additional Korean Air shares from the late Chairman, raising their individual shareholding to 1.08%. This was when Hanjin Group was actively preparing for the holding company transition. It appears that by increasing their Korean Air shareholding, the three siblings aimed for effective succession through governance restructuring.

These shares were converted into Hanjin KAL shares during the process of Korean Air's spin-off and the establishment of Hanjin KAL. A business circle official explained, "Korean Air shares were exchanged for Hanjin KAL shares during the holding company transition, serving as a lever for the three siblings to secure group control."

◇Expansion of Jeongseok Enterprises Shares...A Means to Secure Group Control Using Circular Shareholding

Another lever for the three siblings to expand group control was shares in Jeongseok Enterprises. The siblings began actively increasing their Jeongseok Enterprises shares in the 2000s. Jeongseok Enterprises was the central link in the group's governance structure, controlling major affiliates such as Hanjin and Korean Air through circular shareholding among affiliates.

Before Hanjin Group transitioned to a holding company system in early 2013, Jeongseok Enterprises held 18% of Hanjin shares, Hanjin held 10% of Korean Air shares, and Korean Air held as much as 48% of Jeongseok Enterprises shares. At that time, the late Chairman's family also held about 8% and 7% of Korean Air and Hanjin shares, respectively, in addition to Jeongseok Enterprises shares.

Accordingly, the owner family simultaneously held shares in Jeongseok Enterprises, Hanjin, and Korean Air, controlling the group through circular shareholding structures such as 'Hanjin family → Jeongseok Enterprises → Hanjin → Korean Air → Jeongseok Enterprises,' 'Hanjin family → Hanjin → Korean Air → Jeongseok Enterprises,' and 'Hanjin family → Korean Air → Jeongseok Enterprises.' Jeongseok Enterprises shares were the most effective means to maximize group control with minimal capital.

The siblings continued to increase their Jeongseok Enterprises shares after holding 1.20% each in 2009. By 2013, each sibling's shareholding rose to 2.18%. The late Chairman's family's Jeongseok Enterprises shareholding exceeded 37%. These shares were also converted into Hanjin KAL shares following the merger of Hanjin KAL and Jeongseok Enterprises' investment divisions after the holding company transition.

Additionally, Jeongseok Enterprises served as a financial source for expanding the Hanjin family's group control through dividends and other means. Jeongseok Enterprises grew into a highly profitable company with an operating profit margin exceeding 30%, managing real estate for multiple affiliates. The value of Jeongseok Enterprises shares held by the three siblings rose rapidly, and dividend income was substantial. Therefore, it was used as a cash channel for the three siblings to prepare for rising taxes and gift taxes.

This content was produced with the assistance of AI translation services.