To Minimize Leadership Vacuum

Hanjin Group’s new chairman Cho Won-tae

Hanjin Group has named Cho Won-tae, the only son of the late group chairman Cho Yang-ho and president of Korean Air Lines Co., as its new chairman.

Hanjin KAL, the group’s holding company, announced on April 24 that its board of directors has appointed the junior Cho as the next chairman of the group. "The decision is intended to minimize the leadership vacuum after the death of former chairman Cho and ensure that the group is managed stably," the board said.

The appointment of the new chairman came just 16 days after the sudden death of the former chairman on April 8. The group is hastening to complete the father-to-son control transfer as quickly as possible since it is facing a hostile takeover attempt by an activist fund.

On the same day, Grace Holdings Ltd., a wholly-owned investment purpose subsidiary of Seoul-based activist fund KCGI, announced that its stake in Hanjin KAL has increased from 12.80 percent to 14.98 percent, only 2.86 percent short of the 17.84 percent stake owned by the late Cho. KCGI has become the second largest shareholder of Hanjin KAL by obtaining stakes in the holding firm of Hanjin Group through Grace Holdings from November last year. After that, the activist fund has been asking Hanjin Group to improve its corporate governance structure. If the junior Cho fails to inherit his father’s stake in Hanjin KAL, he may have difficulty in securing control of the group.


Currently, the late Cho holds 17.84 percent of Hanjin KAL’s common share. The junior Cho only has a 2.34 percent stake in Hanjin KAL. This is why the new chairman desperately needs help from his two sisters – Cho Hyun-ah, former president of Korean Air with a 2.31 percent stake, and Cho Hyun-min, former vice president of Jin Air with a 2.30 percent stake, in order to protect his management right of Hanjin KAL.

Industry watchers say Cho Won-tae’s appointment as new chairman implies that the group’s founder family has agreed to give full support to him. “The group needs a rapid transition to defend itself from external attacks,” an analyst said. Regarding KCGI’s additional stake purchase, Hanjin Group insiders said, “There is no way to prevent KCGI from increasing its stake through stock purchase in the market. The group will try to find ways to solidify the junior Cho’s leadership.”

The junior Cho will make his official debut in the annual general meeting of the International Air Transport Association (IATA) to be held in June. The IATA Annual General Meeting is the world's largest gathering in the airline industry where over 1,000 officials, including leaders and executives from member airliners, aircraft producers and related businesses, across the world participate. IATA members account for 83 percent of the world’s air traffic and have a huge influence in the industry, including setting the fare of airliners around the world.

After the first test, the junior Cho is expected to raise funds to pay his inheritance tax, which is estimated at 172.70 billion won (US$150.04 million). The figure has come up when the 50 percent inheritance tax rate is applied to the marketable securities worth 345.30 billion won (US$300 million) held by the late chairman. The key here is raising money for the inheritance tax without selling the stake in Hanjin KAL. Market experts expect that the junior Cho will pay the inheritance tax through stock collateral loans and dividends. He can take out loans of up to 50 percent of Hanjin’s stock values. In addition, he can pay the inheritance tax in installment over five years.

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