Cho Won-tae Launches 'Counterattack', Revamps Hotel Business and Strengthens Board... Will Institutions and Individuals Respond?

Anti-Jo Won-tae Alliance to Counterattack Soon with Shareholder Proposal
Institutional and Individual Stakes Face Real Showdown Ahead of March General Meeting

[Asia Economy Reporter Yu Je-hoon] Cho Won-tae, Chairman of Hanjin Group, has presented a management improvement plan centered on separating the chairman of the board and CEO positions of the holding company Hanjin Kal, as well as a complete overhaul of the hotel business, and has taken a firm stance ahead of the vote battle at the shareholders' meeting scheduled for next month. The governance improvement plan proposed by Chairman Cho's side is evaluated as more advanced than the 'professional management system' suggested by former Korean Air Vice President Cho Hyun-ah, private equity fund KCGI, and Bando Construction, and since it boldly accepted the management improvement plan proposed by KCGI at last year's shareholders' meeting, attention is focused on whether it can gain the upper hand at the shareholders' meeting.

According to Hanjin Group on the 7th, Hanjin Kal held a board meeting at the Seosomun building in Jung-gu, Seoul, this morning and deliberated and approved the management improvement plan. Chairman Cho also attended the board meeting via video connection. Since boarding a chartered flight to Wuhan, China on the 30th of last month, Chairman Cho has been voluntarily self-quarantining.

◆Two consecutive days of 'counterattack' card Cho Won-tae = At the meeting, the Hanjin Kal board decided to separate the positions of chairman of the board and CEO. This is a measure to strengthen the transparency and independence of the board. Currently, Chairman Cho holds both positions concurrently. This is in line with the governance improvement plan of Korean Air, which decided at its board meeting held the day before to establish a nomination committee for outside directors composed entirely of outside directors, a governance committee, and others.

The Hanjin Kal board decided to sell some assets under Kal Hotel Network, including Paradise Jeju Hotel. Kal Hotel Network is a subsidiary wholly owned by Hanjin Kal, and under it are ▲Grand Hyatt Incheon ▲Jeju Kal Hotel ▲Seogwipo Kal Hotel ▲Paradise Hotel Jeju ▲Waikiki Resort Hotel in Hawaii, USA, among others. This essentially marks the beginning of the hotel business's liquidation process. The day before, Korean Air also decided to sell idle and non-core assets such as the Jongno Songhyeon-dong site and Wangsang Leisure Development Co., Ltd. (Wangsang Marina). The market value of these assets is estimated to be around 600 billion KRW.

To improve financial structure, the sale of non-core assets and businesses will also be accelerated. Targets include real estate owned by Hanjin Co., company-owned housing owned by group companies, domestic and overseas real estate, and equity investments in domestic companies.

◆'Gesture' to institutions and individuals, 'blocking escape' to Cho Hyun-ah = This management improvement plan is interpreted as targeting institutional and individual investors, including the National Pension Service. The decision to separate the chairman and CEO of Hanjin Kal aligns with the demands of pension funds and minority shareholders who have called for governance improvement. An industry insider said, "Although the three-party coalition says they will appoint a professional manager separately, given the characteristics of the domestic airline industry, it is questionable whether suitable talent can be found externally," adding, "The plan to strengthen the independence of the board centered on the current professional management system will send a positive signal to pension funds and individual shareholders."

The financial structure improvement through the sale of non-core assets is similar. Korean Air, which has faced attacks from KCGI with a debt ratio reaching 922%, is expected to receive around 600 billion KRW in cash through the sale of the Songhyeon-dong site and Wangsang Leisure Development. In particular, Kal Hotel Network has been recording losses continuously since 2015, indicating profitability issues for some time. This seems to reflect Chairman Cho's intention of "discarding what does not generate profit."

On the other hand, this move also reflects the intention to block former Vice President Cho's escape route. The fact that the hotel business, which former Vice President Cho was attached to, is essentially being liquidated is a sign of this.

◆The coalition will soon propose shareholder proposals... the real battle begins = KCGI has responded to this management reform plan by saying, "It is difficult to give sincerity or credibility," and warned, "Measures hastily put forward only to preserve one's position without genuine willingness and effort for improvement cannot be a fundamental solution to the problem."

Accordingly, the three-party coalition is expected to submit a joint shareholder proposal containing their plan as early as next week. It is already known that they are quietly scouting professional managers to nominate through the shareholder proposal.

After the shareholder proposal, both sides are expected to engage in a 'proxy battle' targeting institutional and individual investors who hold about 34%. Since their shareholdings are 33.45% (Chairman Cho's side) and 32.06% (three-party coalition), a razor-thin contest within about 1% is anticipated, so the outcome may depend on who secures institutional and individual investors first.

Meanwhile, Chairman Cho comforted employees through a post titled "With our flight attendants after returning from Wuhan" on the company bulletin board, saying, "I once again express my gratitude to all flight, cabin, maintenance, and transportation staff who boarded the chartered flight, and I promise never to forget your hard work."

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