Struggling chaebol take out loans on stocks

Owners of top industrial companies took out loans against their own shareholdings


Owners of some of the nation’s top “chaebol” industrial groups have obtained loans from creditors by offering nearly all of their own company stocks as collateral, data from the Financial Supervisory Service and online corporate sources showed on Sunday.

Almost 80 percent of Dongbu Group Chairman Kim Jun-ki’s 15.41 million shares were collateral for loans, while Hyun Jae-hyun, chairman of Tong Yang Group, and Sull Yoon-suk, vice chairman of Taihan Electric Wire, had also each provided more than 80 percent of their respectively owned stocks for debt leverage.

In the case of Kumho Asiana, almost all of Chairman Park Sam-koo’s Kumho Petrochemcial shares ― he holds a total of 1.35 million shares ― were offered as collateral.

Kumho Asiana and Dongbu are among the nation’s top 20 firms in terms of assets, while Tong Yang is in 38th place.

“Because they don’t have enough cash or were going through rough patches, the majority shareholders stepped in to take out loans based on their own stocks,” said Kim Sun-woong, director of the independent Center for Good Corporate Governance.

He added it was common to see companies taking advantage of such loans, rather than having to secure new financial lines.

Firms, just like individual investors, often receive long-term loans from banks and other financial institutions to finance new ventures or to plug holes caused by unsuccessful ventures.

As a case in point, key affiliates of Kumho Asiana are undergoing corporate workout programs to get back on their feet, while others such as Kumho Petrochemical and Asiana Airlines are restructuring their debt based on contracts with their creditors.

As the majority shareholder, the group chairman had utilized his own stock holdings to help secure funds.

Experts warn of risks associated with such practices, such as worst-case scenarios under which the creditors may be forced to confiscate the stocks.

Financially healthier companies were relatively less debt-leveraged.

Only 2,000 shares held by Samsung Electronics Chairman Lee Kun-hee were collateralized, while LG Group Chairman Koo Bon-moo, Lotte Group Chairman Shin Dong-bin and Shinsegae Group Chairwoman Lee Myeong-hee had no such loans against stocks.

A little more than 30 percent of the shares that Chung Mong-koo, chairman of Hyundai Motor holds, were offered as collateral, while Hanwha Group Chairman Kim Seung-youn and STX Group Chairman Kang Duk-soo each had about 26 percent and 50 percent of their shares collateralized, according to the FSS data.

Chey Tae-won, chairman of SK Group who has made headlines for a 100 billion won ($92.5 million) loss from futures-trading, was found to have offered 4 million of his shares in SK C&C as collateral for loans. This was about 18 percent of his total stock holdings.

By Kim Ji-hyun  (jemmie@heraldcorp.com)