RR 43
[043] Warm-Up First 2.
“A Study on the Competitiveness and Mid-to-Long-Term Management Prospects of Hando Steel”
- Extremely weak financial structure.
- Excessive financial costs due to excessive external borrowing.
- Large-scale deficit confirmed.
- Reckless investment that could have a significant impact on the national economy.
- Cooperation with POSCO is unavoidable for Hando Steel’s survival and development.
- Conclusion.
Hando Steel, as well as the entire group, has a weak financial structure. With group-wide revenue of only 1.3 trillion won (or 590 billion won excluding internal transactions), its size is insufficient to handle the massive investment of 4.3 trillion won. Self-financing through real estate sales is deemed unrealistic given the scale of the real estate and current market conditions. Borrowing from financial institutions is also expected to be difficult without policy consideration.
This was the summary of the thick report.
As of 1995, despite having 13 affiliates and ranking 18th among conglomerates, the group’s actual revenue was only 400 billion won.
Hando Group, especially Hando Steel, was literally a sandcastle built on debt. This sandcastle was destined to collapse in about a month.
The fact that such a report came from Sunyang Group meant that Hando Steel’s bankruptcy was already anticipated in the business world.
But no one knew that Hando Steel was just the beginning.
Why did Chairman Jin throw this report at me?
Was he thinking about the aftermath of Hando Steel’s bankruptcy? Or was he planning to acquire the bankrupt Hando Steel?
The latter is highly probable. Considering Sunyang Heavy Industries, Sunyang Machinery, and Sunyang Motors, it’s certainly tempting, provided it’s acquired at a bargain price.
Given Sunyang Group’s internal reserves, acquiring a bankrupt company wouldn’t be difficult.
Moreover, with Sunyang’s lobbying capabilities, including debt write-offs worth trillions of won in the acquisition terms is no big deal. Ten key officials, 1 billion won each. 10 billion won to patch up trillions of won in losses with taxpayer money – how many times has that happened?
What concerned me was the $1 billion in hot money from the U.S. among Hando Steel’s external borrowings. At the current exchange rate of 800 won, there’s no major difficulty in interest payments or principal repayment, but in a year, it would be impossible to pay.
Hando Steel was a poisonous frog.
The moment it’s swallowed, the poison will slowly spread, and if an antidote isn’t found, it could lead to death. The antidote is dollars, a large sum of dollars.
Since I have the antidote, I can save whoever swallows it. The only questions remaining are who will swallow it and how much I will charge for the treatment.
It’s an easy decision. Since I want to claim a few Sunyang Group affiliates as payment for the treatment, I have no intention of stopping Grandfather if he wants to swallow the poisonous frog.
.
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The Anatomy of a Deal: Hando Steel
“Production capacity of 800,000 metric tons annually, with the chairman and his family owning 34.65% of the shares, giving them management control. Since 1989, due to losses in the construction sector, the debt-to-equity ratio has exceeded 300%, and dependence on borrowing has exceeded 50%. The creditors have deemed it unrecoverable.”
“Have they started collecting debts?”
“Yes. In fact, it should have started a year ago… but I don’t know how much they bribed the creditors; they didn’t budge.”
The meeting, which began at 7 AM on Friday, was entirely about Hando Steel.
“What’s the total debt?”
“3.687 trillion won, excluding the $1 billion from the U.S. side.”
Chairman Jin looked at Lee Hak-jae and said.
“Director Lee. No matter how much I think about it, this doesn’t make sense. How can so much money be borrowed just to build a single steel mill?”
“If you look at the U.S. Nucor Corporation, 1.6 trillion won would cover it. Of course, even if the environment is different from ours, with cheap land, low equipment introduction costs due to the steel industry recession, and the lowest price purchase of appropriate equipment through in-house engineering rather than turnkey basis, we should assume that at least 1 trillion won or more has leaked somewhere.”
Inflating costs and embezzling that money through insider trading was a specialty of chaebol groups, but Hando Group had taken it too far.
More than half of the group’s total revenue came from internal transactions!
This was not an irregular method but an act of brazen robbery.
Chairman Jin, whose furrowed brow straightened, continued his questions.
“To what extent can debt be written off?”
“First, we can have the Korea Asset Management Corporation purchase the financial institutions’ debts, and at that point, we can secure a 2 trillion won write-off. We then purchase Korea Asset Management Corporation’s bonds at half price. 800 billion won should be enough.”
“Dollars won’t be possible, will they?”
“No. However, we can extend the repayment period. The government will provide payment guarantees.”
“YS… He’s strict, will it work?”
“Hando Steel is Hando Group’s flagship company. Since Hando Group is going to be dismantled anyway, the impact must be minimized. They will approve it.”
Chairman Jin’s mind began to calculate.
$1 billion was 800 billion won, making the total 1.6 trillion won. He had no intention whatsoever of paying 1.6 trillion won of his precious money to acquire it.
He could temporarily use Sunyang’s funds for the acquisition, but they had to be recovered immediately.
“When Hando Group is torn apart, what should we secure? Things that will be profitable.”
“The 80,000 pyeong of the Busan rebar factory site out of the 100,000 pyeong, excluding the logistics base, is available. We can prevent creditors from touching it and build apartments on that site for sale, securing a good amount.”
“And?”
“40,000 pyeong of land in Jangji-dong and 10,000 pyeong of land in Gaepo-dong. However, these lands are owned by Hando Construction, not Hando Steel.”
The minds of the key group executives attending the study meeting were working diligently.
They all understood the Chairman’s intention to acquire Hando Steel for nothing.
“Chairman.”
Jo Dae-ho of Sunyang Motors, who hadn’t said a word until now, spoke for the first time.
“We have information that Daehyun Group is also targeting it.”
The study was so silent that even Chairman Jin’s breathing could be heard.
Chairman Jin’s face, now flushed, gritted his teeth.
“When did you find out?”
“I received a call this morning. A supplier to Daehyun Motors subtly hinted at it. He was rambling while being entertained at a room salon.”
“Damn, those bastards…”
Daehyun Group was no longer just a competitor. To Chairman Jin, who already considered Hando Steel his own property, they were merely bandits trying to steal his company.
“First, find out what those Daehyun bastards are doing. We’ll plan the acquisition strategy after that.”
The meeting ended. They had to put all their effort into stopping the bandits first. As everyone stood up and gathered their documents, Vice Chairman Jin Young-gi spoke with a smile.
“Did you see Do-jun’s interview article?”
At the Vice Chairman’s words, the affiliate presidents didn’t forget their belated greetings.
“Congratulations, Chairman. He was truly amazing.”
“I didn’t know Do-jun was a national figure. Congratulations.”
Chairman Jin’s hardened expression completely relaxed, and he nodded.
“Indeed. I didn’t know he’d get such good grades either. Isn’t it amazing?”
“But Father. Is Do-jun really applying to Seoul National University Law School?”
“Why? Are you worried he’ll fail?”
“With those grades, how could he? Since you cherish him, I naturally thought he’d major in business administration or economics.”
“He inherited Yoon-gi’s blood. How can I stop him from doing what he wants?”
“Should I meet Yoon-gi and try to persuade him?”
“Leave him be. It’s not bad to have a prosecutor general come out of the family.”
To Jin Young-gi, who kept looking at him, Chairman Jin subtly waved his hand as if it were nothing important.
This would further lower Yi Bang-won’s vigilance.
“Oh, by the way, where is Young-jun now?”
“He’s been working in London since last year. He should be gaining practical experience in finance.”
“Tell him to come back.”
“After he finishes up in London?”
Vice Chairman Jin Young-gi’s heart pounded, wondering if his son’s exile was finally over.
“Yes. Have him participate in this Hando Steel acquisition. And he needs to get married. Let’s hold the wedding next spring.”
“Yes. I will prepare thoroughly.”
Yi Bang-won would now become complacent.
.
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Grandfather’s Homework and the Art of OPM
“Was the homework too difficult?”
“…Yes.”
When I answered dejectedly, Grandfather showed even more curiosity.
“Do you know what the homework was about?”
“If Hando Steel collapses, Sunyang Group will acquire it, right?”
Grandfather’s smile covered his curiosity.
“Why do you think that company will collapse?”
“The report was very negative about Hando Steel.”
“Why did you think Sunyang would acquire it?”
“If they weren’t interested in acquiring it, they would have detailed the changes in the steel industry after the bankruptcy and their impact on Sunyang Group. When a fire breaks out next door, the important thing is whether it spreads to our house, not why the fire started or if there are valuable items in the burning house.”
“Exactly. That’s it.”
Chairman Jin slapped his knee.
“But I can’t find the answer.”
“What answer were you looking for?”
“How to bring Daehyun Group to its knees. If I had found that, I would have gotten one sports car key today.”
I scratched my head in feigned disappointment, subtly glancing at Grandfather’s expression. But why did his expression look like that? Did I go too far? Grandfather’s surprise was completely exposed.
“You, you… Why do you think Daehyun jumped into the acquisition?”
“Among the companies that handle steel—POSCO, Sunyang, Daehyun, Ajin, Sammi, Dongguk—only three are big enough to acquire Hando Steel. But POSCO has no reason to be interested in Hando, leaving only us and Daehyun.”
“Just because they’re big doesn’t mean they’ll necessarily jump in. There has to be a clear reason…”
“Oh, come on, Grandfather was interested, so would Chairman Daehyun just sit still…?”
While presenting concrete data and stating that Daehyun also wanted Hando Steel would be the correct answer, a perceptive answer was ideal for now.
“Since they lost their No. 1 position in the heavy industry sector, which they were far ahead of Sunyang in, I don’t think they’ll just let this opportunity pass.”
“No CEO would pour astronomical amounts of money into acquiring a company just for pride.”
“Wouldn’t they at least make an attempt, even out of pride?”
Grandfather finally burst into laughter.
“Hahaha. Exactly. He’s the kind of person who would take risks even for pride.”
I waited until his cheerful laughter subsided, then subtly asked.
“But acquiring this company would cost a huge amount of money, wouldn’t it? The debt alone is several trillion won…”
As if he had been waiting for my question, Grandfather came closer to me.
“Do-jun. Translate ‘other people’s money’ into English.”
“Other people’s money? Other People’s Money?”
“Exactly. That is business. Managing with other people’s money, not your own. But Korean chaebols are a bit different.”
“How?”
“As the English words imply, it’s about using the People’s money, the public’s money.”
The public’s money, does he mean taxes?
“When acquiring an insolvent company, we demand debt write-offs from creditors, and that deficit is filled with taxpayer money. This is the surest way to grow a group’s size. And it always works.”
He thought of trillions of won in public funds as pocket money. Not an ounce of conscience. He didn’t even consider it an illegitimate method from the start.
I knew the essence of chaebols, but hearing it directly from Grandfather’s mouth sent shivers down my spine.
Grandfather, patting my frozen shoulder, wore the expression of a victor.
“Oh, Do-jun. For now, let’s pretend what you said in the interview was genuine. Understood?”
.
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End of Year Celebrations
In 1996, on the last day of the year.
All the family, including Grandfather, gathered at Sunyang Hotel.
It was a celebration for me, marking the end of the year with good results, and a welcoming party for Jin Young-jun, who had returned home after a long time abroad.
“Wow, our youngest. You really made a splash. I saw the interview. Congratulations.”
“Ah, Young-jun hyung. Thank you. And congratulations to you too. On your return.”
My hand trembled slightly as I shook the hand he extended.
“Future Prosecutor General, later on, I’ll entrust my irregular inheritance to you. Handle it well. Heh heh.”
As he whispered into my ear, my whole body trembled slightly..
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