Hanjin succession under spotlight upon chief’s death

Following the shocking news of Hanjin Group Chairman Cho Yang-ho’s death on Monday morning, speculations immediately arose over the family-controlled group’s succession and inheritance plans.

Cho’s death, which came less than two weeks after his removal from the company’s board of directors, leaves behind a huge inheritance tax for his three children, including his only son and successor Cho Won-tae -- estimated at around 172.7 billion won ($151 million).

“The entire Hanjin Group has swung into an emergency mode and the board will make decisions on key agendas,” the company said, following the announcement that Chairman Cho died of a chronic lung disease in Los Angeles at the age of 70.

It is yet uncertain whether the deceased Cho had a notarized will, as is often the case among conglomerate chiefs. Meanwhile, the prospective successor to the group’s control tower is Cho Won-tae, the late Cho’s only son and the president of Korean Air.

The imminent hurdle for the junior Cho is his lack of control of Hanjin KAL, the holding company of the entire group and the largest shareholder of Korean Air with 29.96 percent stake.

The 43-year-old Won-tae holds just 2.34 percent stake in the air carrier, while his two sisters -- Cho Hyun-ah and Cho Hyun-min -- own 2.31 percent and 2.3 percent, respectively.

In order to expand his leverage over the key affiliate, the 43-year-old heir will inevitably have to inherit his late father’s 17.84 percent, which translates into more than 300 billion won as of Monday.

Under the domestic fiscal rules, a maximum tax rate of 65 percent is levied on stock inheritances which involve the transfer of managerial rights.

As a result, Won-tae may face an inheritance tax of 195 billion won or more, considering the latest uptrend of the company’s stock price. The tax, however, when exceeding 20 million won in total, can by paid in installments over a five-year period.

“(As of Monday morning), the inheritance tax that the Cho family has to pay is estimated at around 172.7 billion won,” said Park Gwang-rae, analyst at Shinhan Financial Investment.

“But the amount may shoot up above the 200 billion won mark, considering unlisted stocks and real estate assets.”

Theoretically, the heir may partly give up his inherited shares but the scenario is highly unlikely as it will further curtail his control over the nation’s eighth-largest conglomerate.

Speculations mounted within the industry that the owner family may exercise leverage to increase the dividend payments of Hanjin KAL in order to secure liquidity to pay for the inheritance tax.

Also, should Won-tae partly give up his inheritance or fail to pay the due tax in time, he may give away Hanjin KAL’s largest shareholder status to the Korea Corporate Governance Improvement Fund. The private equity fund, which is the second-largest shareholder with 13.47 percent stake, has been active in keeping the Cho family in check regarding management control.

Further weighing upon the heir is his late father’s disgraced exit from the air carrier’s decision-making body. The National Pension Service, the world’s third-largest fund operator and second-largest shareholder of Korean Air, voted against late Cho’s reappointment to the board, citing his liability for infringing investors’ rights.

As the only son among the late Cho’s three children, Won-tae has long been deemed the third-generation successor. After his MBA course at the University of Southern California, he first joined the group in 2003 and swiftly rose into the management, until sitting as Korean Air president in January 2017.

His sisters, Hyun-ah and Hyun-min, were respectively involved in the group’s travel and air services divisions until they were dismissed upon a series of power abuse scandals.

By Bae Hyun-jung (tellme@heraldcorp.com)