[043] Warm-Up Session 2.
“Study on the Competitiveness and Mid-to-Long-Term Management Outlook of Hando Steel”
Extremely weak financial structure.
Excessive financial costs due to over-reliance on external borrowing.
Large-scale deficits are certain.
Reckless investments that could significantly impact the national economy.
Pohang Steel’s cooperation is essential for Hando Steel’s survival and growth.
Conclusion.
Hando Steel, and indeed the entire group, has a fragile financial structure. With total group sales at 1.3 trillion won (5.9 trillion won excluding internal transactions), it’s unrealistic to handle an investment of 4.3 trillion won. The idea of raising funds through real estate sales is impractical given the current market conditions and the scale of the properties. Borrowing from financial institutions would also be challenging without policy support.
This was the gist of the thick report.
As of 1995, despite having 13 subsidiaries and ranking 18th in the business world, the group’s actual sales were a mere 400 billion won.
Hando Group, especially Hando Steel, was a sandcastle built on debt. And it was set to collapse in just over 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 realized that Hando Steel was just the beginning.
Why did Chairman Jin hand me this report?
Is he thinking about what comes after Hando Steel’s bankruptcy? Or is he planning to acquire the bankrupt Hando Steel?
The latter seems likely. Considering Sunyang Heavy Industries, Sunyang Machinery, and Sunyang Motors, it’s a tempting prospect—if acquired at a bargain.
Given Sunyang Group’s internal reserves, acquiring a bankrupt company wouldn’t be difficult.
Moreover, with Sunyang’s lobbying power, including a debt write-off worth trillions in the acquisition terms wouldn’t be a big deal. Ten key figures, 1 billion each. A hundred billion to patch up trillions in losses with taxpayers’ money—it’s not the first time.
What bothers me is the 1 billion dollars of hot money from the U.S. among Hando Steel’s external borrowings. With the current exchange rate at 800 won, paying interest or principal isn’t a problem, but a year from now, it will be impossible.
Hando Steel is a poison frog.
Swallow it, and the poison will slowly spread. Without an antidote, it could be fatal. The antidote is dollars—a large sum of dollars.
I hold the antidote, so I can save whoever swallows it. The decision is who to let swallow it and how much to charge for the cure.
It’s an easy decision. I want to charge a few Sunyang Group subsidiaries as the treatment fee, so if Grandpa wants to swallow the poison frog, I won’t stop him.
“Annual production capacity of 800,000 M/T, with the chairman and his family owning 34.65% of the shares, controlling management. Since 1989, losses in the construction sector have pushed the debt ratio over 300%, with a borrowing dependency exceeding 50%. The creditors have deemed it irrecoverable.”
“They’ve started debt collection, right?”
“Yes. It should have started a year ago, but the creditors were paralyzed by the amount of bribes they received.”
The meeting that started at 7 a.m. on Friday was all about Hando Steel.
“What’s the total debt?”
“3.687 trillion won, excluding the 1 billion dollars from the U.S.”
Chairman Jin looked at Lee Hak-jae and spoke.
“Director Lee, no matter how I think about it, this doesn’t make sense. How could they spend so much money just to build a steel mill?”
“Based on the U.S. Nucor Corporation, it would cost 1.6 trillion won. Even considering differences like cheap land, low equipment costs due to a steel market slump, and in-house engineering instead of turnkey projects, at least 1 trillion won must have leaked somewhere.”
Inflating costs and siphoning off money through insider trading is a specialty of conglomerates, but Hando Group took it to an extreme.
More than half of the group’s total sales are internal transactions!
This isn’t just a loophole; it’s outright robbery.
Chairman Jin, who had been frowning, continued his questions.
“How much debt relief is possible?”
“We can have the Asset Management Corporation buy the financial institutions’ debts and write off about 2 trillion won. We can then buy the Asset Management Corporation’s bonds at half price. It should cost about 800 billion won.”
“What about the dollars?”
“No, but we can extend the repayment. The government will guarantee the payment.”
“YS… He’s strict. Will it work?”
“Hando Steel is the main company of Hando Group. Since Hando Group is disintegrating, the impact must be minimized. They’ll approve it.”
Chairman Jin’s mind began calculating.
1 billion dollars is 800 billion won, and the total amount is 1.6 trillion won. He had no intention of paying 1.6 trillion won in hard cash for the acquisition.
He could temporarily use Sunyang’s funds for the acquisition but would need to recover them immediately.
“What should we secure when Hando Group breaks apart? Something profitable.”
“80,000 pyeong of land at Hando Steel’s Busan rebar plant, excluding the logistics base. If we prevent the creditors from touching it and build apartments for sale, we can secure a decent amount.”
“Anything else?”
“40,000 pyeong of land in Jangji-dong and 10,000 pyeong in Gaepo-dong. However, this land belongs to Hando Construction, not Hando Steel.”
The key figures in the study were busy thinking.
They all understood the chairman’s intention to acquire Hando Steel for free.
“Chairman.”
For the first time, Jo Dae-ho of Sunyang Motors spoke up.
“I have information that Daehyeon Group is also eyeing it.”
The study fell silent, so quiet you could hear Chairman Jin’s breathing.
His face turned red as he gritted his teeth.
“When did you find out?”
“I was informed this morning. A supplier to Daehyeon Motors hinted at it. They were babbling during a room salon reception.”
“Damn it…”
Daehyeon Group was no longer a competitor. To Chairman Jin, who already considered Hando Steel his own, they were just a band of thieves trying to steal his company.
“Find out what Daehyeon is up to first. We’ll revise our acquisition strategy afterward.”
The meeting ended. They had to fend off the band of thieves with all their might. As everyone stood up and gathered their papers, Vice Chairman Jin Young-ki spoke with a smile.
“Did you see Do-jun’s interview article?”
The division heads, who had forgotten to congratulate, quickly chimed in.
“Congratulations, Chairman. It’s truly impressive.”
“I didn’t know Do-jun was a national figure. Congratulations.”
Chairman Jin’s stern expression softened as he nodded.
“Indeed. I didn’t expect him to perform so well. It’s remarkable, isn’t it?”
“But Father, is Do-jun really applying to Seoul National University’s law school?”
“Why? Worried he won’t get in?”
“With those grades, that’s unlikely. I thought he’d naturally major in business or economics since you favor him.”
“He’s got Yoon-ki’s blood. How can I stop him from doing what he wants?”
“Should I meet Yoon-ki and try to persuade him?”
“Leave it be. Having a prosecutor general in the family isn’t bad.”
Vice Chairman Jin Young-ki, who kept watching for cues, saw Chairman Jin wave it off as if it were no big deal.
This would ease Yi Bang-won’s vigilance.
“By the way, where’s Young-jun now?”
“He’s been working in London since last year, learning finance.”
“Tell him to come back.”
“Wrap up in London, you mean?”
Vice Chairman Jin Young-ki’s heart raced at the thought of his son’s exile ending.
“Yes. Have him participate in the Hando Steel acquisition. And he should get married. Let’s hold the ceremony next spring.”
“Yes, I’ll prepare thoroughly.”
Yi Bang-won would now let his guard down.
“Was the assignment too difficult?”
”…Yes.”
I answered, sounding defeated, and Grandpa’s curiosity piqued even more.
“Do you know what the assignment was?”
“When Hando Steel goes bankrupt, Sunyang Group will acquire it, right?”
Grandpa’s smile masked his curiosity.
“Why did you think that company would go bankrupt?”
“The report was very negative about Hando Steel.”
“Why did you think Sunyang would acquire it?”
“If they weren’t interested in acquiring it, the report would have focused more on the impact of changes in the steel industry on Sunyang Group after the bankruptcy. When the house next door is on fire, the important thing is whether it spreads to our house, not why it caught fire or if there are expensive items inside.”
“Exactly. That’s it.”
Chairman Jin clapped his knee.
“But I couldn’t find the answer.”
“What answer were you looking for?”
“How to bring Daehyeon Group to its knees. If I had figured that out, I might have gotten the keys to a sports car today.”
I scratched my head, feigning regret, while sneaking a glance at Grandpa. But why does he look like that? Did I go too far? Grandpa’s surprise was evident.
“Why do you think Daehyeon is entering the acquisition race?”
“If you’re interested, wouldn’t Chairman Daehyeon also take notice…?”
While specific data would make a more convincing argument that Daehyeon wants Hando Steel, a more intuitive answer fits the moment.
“After losing the top spot in the heavy industry sector to Sunyang, they wouldn’t let this opportunity slip by.”
“No executive would spend an astronomical amount of money to acquire a company just out of pride.”
“But wouldn’t they at least give it a shot because of their pride?”
Grandfather finally burst into laughter.
“Ha ha ha. Exactly. That guy would risk it all just because of his pride.”
I waited for his laughter to subside before asking quietly, “But wouldn’t it cost a fortune to acquire this company? The debt alone is in the trillions…”
As if he had been waiting for my question, Grandfather moved closer to me.
“Do-jun, say ‘other people’s money’ in English.”
“Other people’s money?”
“Yes, that’s business. Running things with money that’s not your own. But our country’s conglomerates are a bit different.”
“How so?”
“Just like the English phrase, they use the people’s money.”
The people’s money… does he mean taxes?
“When they acquire failing companies, they demand debt relief from creditors, and the gap is filled with tax money. It’s the most surefire way to grow a conglomerate. And it always works.”
They treat billions in public funds like pocket change, without a shred of guilt. They don’t even consider it unethical.
I knew the essence of these conglomerates, but hearing it directly from Grandfather sent chills down my spine.
He patted my frozen shoulder with the look of a victor.
“Oh, Do-jun. Let’s just say, for now, that what you said in the interview was sincere, alright?”
The last day of 1996.
Grandfather and the entire family gathered at the Sunyang Hotel.
It was a celebration of my successful year and a welcome home for Jin Young-jun, who had returned from living abroad.
“Wow, our youngest really made a splash. I saw the interview. Congratulations.”
“Oh, Young-jun hyung. Thank you. And congratulations to you too, on your return.”
As I shook his outstretched hand, mine trembled slightly.
“Future Prosecutor General, I’ll leave my creative inheritance planning to you. Handle it well, will you? Heh heh.”
When he whispered in my ear, a shiver ran through my entire body.