Cho Won-tae Holding a 'Double-Edged Sword'

"Helping San Eun-seo with the acquisition, but I also have parts to handle"
Behind defense of management rights and mega carrier construction... loss of management rights possible in case of management failure

Chairman Cho Won-tae of Hanjin Group is answering questions from reporters after receiving a plaque of appreciation on behalf of the late Chairman Cho Yang-ho at the 32nd Korea-US Business Council General Assembly held at the Federation of Korean Industries building in Yeongdeungpo-gu, Seoul, on the 18th. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Yoo Je-hoon] "While the Korea Development Bank (KDB) is helping with the acquisition of Asiana Airlines, there are standards I must meet as well."

With Korean Air's acquisition of Asiana Airlines, a mega-carrier ranked 7th in the world will emerge, but Cho Won-tae, chairman of the Hanjin Group, finds himself holding a "double-edged sword." The KDB, seemingly mindful of preferential treatment controversies, has imposed strict conditions known as the "7 major obligations" as prerequisites for supporting the acquisition to the Hanjin Group.

According to the Financial Supervisory Service's electronic disclosure system on the 18th, the seven major obligations imposed by KDB through the investment agreement include: ▲ Appointment rights for three outside directors and audit committee members from KDB ▲ Compliance with prior consultation and consent rights on major management matters ▲ Establishment and operation of an Ethics Management Committee ▲ Cooperation with management evaluations by the Management Evaluation Committee ▲ Responsibility for establishing and implementing a Post-Merger Integration (PMI) plan after acquisition ▲ Compensation of 500 billion KRW in penalties for breach of the investment agreement ▲ Provision of collateral and restrictions on disposal of Korean Air shares.

These conditions are interpreted as measures to minimize preferential treatment controversies surrounding this acquisition battle. By providing 800 billion KRW to Hanjin KAL through third-party allotment capital increase and exchangeable bonds (EB) issuance, KDB secures approximately 10.7% of shares, emerging as a casting vote in management control. For Chairman Cho, this acquisition with KDB means gaining an advantage in the management rights dispute with the shareholder coalition (the three-party alliance) aiming to normalize the Hanjin Group, and building a world-class airline group, but at the same time, facing significant restrictions on exercising management rights.

Immediately, under this agreement, KDB can exert direct influence on Korean Air and Hanjin Group management through appointment rights for outside directors and auditors, as well as prior consultation and consent rights. Setting Chairman Cho’s Hanjin KAL shares as collateral on the condition of agreement fulfillment and imposing a 500 billion KRW penalty for violations also serve as elements that threaten him.

KDB explicitly stated that if Chairman Cho fails in the integration of the two companies, he must step down from frontline management. Chairman Cho also told reporters on the day, "I will be subject to management evaluation (by authorities) going forward. There are standards I must meet," adding, "KDB has helped a lot to enable me to manage well," while remaining cautious.

The Ethics Management Committee, which considers various power abuse controversies involving the Hanjin family and sibling conflicts, is also one of the checks and balances. Chairman Cho, seemingly aware of this, said, "(Resolving family conflicts) is an issue that must continue to be addressed," adding, "It was possible because of family cooperation even now, and we will maintain this going forward."

Inside and outside the industry, it is expected that the situation Chairman Cho will face in the future will not be easy. The total debt scale will surge by more than 10 trillion KRW immediately due to the acquisition of Asiana Airlines, and the impact of the COVID-19 pandemic is not expected to be resolved easily. An industry insider said, "If the integration succeeds, a large airline group can be built, but if it fails, there is a risk of losing management rights in an instant." Professor Lee Hwi-young of Inha Technical College noted, "While enlargement is a trend, it is questionable whether structural reform without improving the organizational health is possible under the current circumstances."

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