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Hyundai scandal uncovers economic problems of South Korean consortium

Release Time:2021-07-20 Topic:Korean stock market trading rules Reading:16 Navigation:Stock Liao information > International > Hyundai scandal uncovers economic problems of South Korean consortium phone-reading

More than a month ago, when Kim Jae-ro, the former representative director of Investusglobal, a South Korean investment consulting firm, was investigated by the Korean Attorney General's Office for accepting 1.45 billion won to help others in loans or acquiring loss-making companies, the South Korean financial and business circles had already noticed it. The smell of wind and rain.

Sure enough, unsurprisingly, following the clue of Kim Jae-lu, various clues led to another corporate consortium scandal. This time the protagonists are South Korea’s second largest consortium Hyundai-Kia Motors Group President Zheng Mengjiu and his son Zheng Yixuan. April 28th, the first

The Seoul Court issued an arrest warrant and agreed to the arrest of Zheng Mengjiu by the Grand Prosecutor's Office to facilitate investigations. Suddenly, the Korean government and the public were shocked. The aftermath of this incident even spread to the other side of the ocean-Hyundai Motor Group has announced that it has postponed the progress of opening production lines in the United States and the Czech Republic.

This scene performed by Hyundai once again brought the entanglement between power and money that prevailed in Korean politics to the front of the stage.

On April 28, South Korea's Hyundai Motor Group Chairman Zheng Mengjiu (middle) walked out of the Seoul District Court. On the same day, Zheng Mengjiu appeared in court for questioning, and the South Korean Supreme Prosecutor's Office asked for his arrest.

On April 20, Zheng Yixuan, son of Zheng Mengjiu and chairman of Kia Motors, an important subsidiary of Hyundai Motor Group, entered the office of the Procuratorate General for inquiries.

On April 20, non-union employees of Hyundai-Kia Automobile Group demanded the arrest of Zheng Yixuan, and finally clashed with the police.

"Illegal interest chain" reveals its tail

The entire "modern case" is like a long "illegal interest chain". The first thing that attracted the attention of the outside world was a logistics company established by the Zheng family to serve Hyundai and Kia. Through the investigation of the company's capital flow, the secrets of the Zheng family's "two handovers" to eliminate debts gradually surfaced.

In the entire "illegal interest chain" of the Zheng family, the first one that attracted the attention of the outside world was the Glovis company established by the Zheng family in 2001. The company enjoys the exclusive export transportation rights of Hyundai and Kia Motors. Zheng and his son only injected 5 million US dollars into this company, but last year the company's profit was as high as 82 million US dollars. Taking advantage of some existing loopholes in the Korean company law, Zheng and his sons have made hundreds of millions of dollars in profits through Glovis. Glovis usurped the profit opportunity originally belonged to the Hyundai Group, greatly harming the interests of Hyundai Motor's shareholders and the group itself.

On March 26 this year, when the South Korean General Prosecutor’s Office searched Glovis’s vault, it not only found secret funds such as cash, negotiable certificates of deposit, and U.S. dollars, equivalent to millions in U.S. dollars, but also found detailed records of bribery of politicians and other secrets. The "ledger" of the use of funds. The investigation into the bribery case of "financial intermediary" Jin Zailu gradually began to turn to political circles.

With the gradual deepening of the investigation by the Grand Prosecutor's Office, on April 13, the direction of Hyundai Kia's secret funds gradually became clear. The Grand Prosecutor's Office announced that it has found clues about Kim Jae-rok's lobbying political and official circles in order to eliminate Hyundai Kia's debts after accepting Hyundai Kia's billions of won.

According to the information held by the Public Prosecutor's Office, Hyundai Motor Company and Kia Motors Corporation each acquired 45.3% of WIA's shares in December 2001, which means that Hyundai-Kia Motors Group acquired a total of 90.8% of WIA's shares. At that time, WIA’s average annual net profit reached 61.1 billion won, but Hyundai Motor and Kia Motors acquired 6.84 million shares of the company at a price of 100 won per share, which cost less than 700 million won.

"When the "Kia Motors Incident" occurred, Kia Motors sold WIA with a bank debt of 73.98 billion won to WIN&WIN21 and Korea Flange Industry. After completing the spin-off of the company, it re-acquired WIA in December 2001, and Elimination of debts through "parking" (delivering the company's equity to a specific person for safekeeping).

Suspicions about inheritance rights

Through a survey of five companies that have participated in the merger of Hyundai and Kia’s corporate restructuring activities, the South Korean Attorney’s Office found that Hyundai Motor had obtained huge amounts of funds through “turning hands” subsidiaries that owned state funds, and part of it was used Purchased the shares necessary for the succession of Zheng Yixuan's management rights, and the other part was suspected to have flowed into the political circles during the 2002 presidential election.

At the beginning of April, the investigation of the South Korean Grand Prosecutor's Office began to turn to the issue of inheritance rights of the Hyundai-Kia Group. The Public Prosecutor's Office first announced the prohibition of Kia Motors President Zheng Yixuan from leaving the country, and then conducted a raid on five corporate restructuring companies (CRC) related to raising secret funds, and began a full investigation into the family of Hyundai-Kia Motors Group's management rights Inherit the doubt.

The searched WIN&WIN21, WIN&WIN21 corporate restructuring professional company, CNCcapital, cultural venture capital and the company are all companies that have acquired loss-making companies. Their responsibility is to increase the value of the company through the adjustment of the corporate structure after completing the acquisition of a loss-making company, and then resell it again. The Grand Prosecutor's Office claimed that they were directly or indirectly involved in the process of Hyundai Kia's merger of other mismanaged companies. At the same time, it also participated in the process of acquiring subsidiaries such as BontecoWIA at low prices by Hyundai-Kia.

The Korean Prosecutor's Office believes that Hyundai Motor Group sold a subsidiary of Kia Motors, which has state funds, and then used low-cost acquisition methods to raise secret funds to buy shares required for the succession of Zheng Yixuan's management rights. Through participating in the aforementioned acquisition of Hyundai, the five companies were suspected of participating in the process of raising Zheng Yixuan's succession capital.

As of April 28, the South Korean prosecutor’s investigation showed that Zheng Mengjiu had commanded the group to raise as much as 130 billion won in secret funds since 2001. These were more than 46 billion won from the Hyundai-Kia headquarters, from Glovis And Hyundai Mobis, Kia Motors, WIA, Hyundai Capital and other five subsidiaries raised more than 68 billion won, and more than 23 billion won through false trade. Among them, in 2002, the secret funds raised by Zheng Mengjiu amounted to 48 billion won, and 20 billion won was used during the presidential election from August to December of the same year.

In 2004, when the prosecutors investigated the presidential election funds, it was found that the 10 billion won in the underground vault of Hyundai Capital Corporation was transferred to the Grand National Party and 660 million won to the ruling party. Therefore, Zheng Mengjiu’s secret funds are likely to be another fund that has nothing to do with the presidential election funds found in 2004. The investigation of Hyundai Motor’s secret funds is likely to be extended to the 2002 presidential election funds and local election funds. survey. Once the speculation that "Hyundai Kia's secret funds flowed into politics during the 2002 presidential election" becomes a reality, it will inevitably spread to South Korean politics.

"Political and business fusion" has become a hotbed of corruption

The case of Zheng Mengjiu's illegal political donation is just the tip of the iceberg of South Korea's "political and business alliance". The problem can be traced back to the time when Park Zhengxi was in power. The government’s patriarchal style forced companies to obtain development opportunities through “tribute”. Over time, spending money to "purchase" privileges from the government, especially loans, has become the way for most Korean consortia to survive and develop.

Zheng Mengjiu's illegal political donation is just one of a series of consortium scandals in South Korea in recent years. It is not the first time that Hyundai Group itself has been involved in a scandal. After years of anti-corruption campaigns and political reforms, the legacy of the military government from the 1960s to the 1990s-the inexhaustible links between the government and large corporations, still affect today's South Korean political and economic system.

In 1961, South Korea was still under the reign of the Park Jung Hee military government. The military leaders at that time believed that the support of the business community was crucial to the modernization of the South Korean economy. Therefore, the Park Jeong-hee government began to implement economic policies that favor consortia, such as export subsidies, loan concessions, and loan guarantees. The consortium economy quickly penetrated into all industries from shipbuilding to semiconductors, and gradually developed.

However, at that time, which company was supported by the military government and which company it did not support were often determined by the preferences of the government and officials. It’s said that during the period of Park Jeong-hee in power, he often convened large enterprisesIn the joint meeting of home and bankers, Park Zhengxi will directly designate a bank to provide loans on the spot if any project has a promising future. Therefore, in order to obtain reliable and rapid information from politicians, favorable policies from senior bureaucrats, and business opportunities to enter important industries, the consortium had no choice but to maintain close relations with the government. In return, the consortium provides rebates and other forms of money to the government and various political parties, also known as political contributions.

In 1995, when the scandal of Lu Tae-woo’s secret political funds was revealed, Koreans were surprised not only by the size of Lu Tae-woo’s secret political funds and the frequency of bribery. The most shocking thing was that almost all the famous South Koreans were Of large companies have regularly provided political contributions to Lu Taiyu. The inspection agency subsequently investigated and found that the companies that provided the most political contributions to Tae-woo Noh were Hyundai and Samsung Group, each of which “contributed” US$32.7 million to Tae-woo Noh.

Due to the close relationship between the government and the business community, there are intentional or unintentional omissions in the government's supervision of commercial activities. Especially in terms of financial policies, the government has implemented extremely loose lending policies. Many large consortia continue to use debt leverage to expand the scale of their enterprises, but ignore the huge debts and fiscal deficits they shoulder.

By the end of 1997, the average debt-to-asset ratio of the 30 consortia had reached 379.8%. By 2003, this ratio had declined, but it had also reached 172.2%. This directly caused the South Korean economy to be unbearable during the Asian financial crisis. one strike.

Collusion between government and business is not yet in a period of time

The vigorous and repeated struggle not only failed to eliminate the tradition of political donations, but also provided new ground for political donations. It was just that the methods became more and more concealed, but the number was still astonishing. If the Zheng Mengjiu scandal is related to the 2002 presidential election, the current President Roh Moo-hyun may have to bow his head to the people.

With the advancement of South Korea’s democratization process in the middle of the last century and reflections on the Asian financial crisis, South Korea has introduced various regulations to restrict collusion between politicians and businessmen. However, for decades, the obscure relationship between politicians and the business world has become one. The tradition of planting has deep roots.

On the one hand, the democratization in Korea over the past decade has not changed the situation in which companies rely on the government. Entrepreneurs have a strong political complex, and they have even begun to move closer to the political circle. It is not uncommon to see the phenomenon of "business with excellence and officialdom". In recent years, many ministers in the South Korean cabinet have come from the management of large companies such as Samsung, Hyundai, LG, and SK. The connection between the political and economic circles has continued to cut, and the rationale is still chaotic.

On the other hand, the new political and economic environment has not only failed to eliminate the tradition of political donations, but has provided new soil for political donations. Take elections as an example. There are many types of political elections in South Korea. In addition to the vigorous presidential election and the election of members of the Diet, there are also elections for local officials such as the city and the provincial government, and elections for local councillors.

Today’s South Korean elections are becoming a “fund-intensive industry”. In recent years, South Korean political circles have been pushing the so-called "clean election" atmosphere. According to the law, each candidate’s campaign expenses cannot exceed US$112,000. The state finances must provide certain election expenses for the participating parties and candidates, and the public media must publish a certain number of campaign advertisements for them, but according to South Korean media reports In the 2000 South Korean parliamentary election, the average cost of a candidate who won the local election was 3.75 million US dollars.

From 112,000 US dollars to 3.75 million US dollars, who will fill the difference? Because of the ambiguous relationship between political parties and enterprises, enterprises have naturally become the "treasury" of candidates. In order to obtain support from the government, the consortium is also willing to pay, and often bets on multiple sides. However, as law enforcement agencies and voters have become more and more strict in monitoring the sources of campaign funding, politicians have become accustomed to concealing campaign or event funding, and many political donations have gradually gone underground. In the past two years, Samsung, Daewoo, SK and other large corporate consortia have been involved in illegal political donations. Zheng Mengxian, the former chairman of Hyundai Group, committed suicide by jumping off the building in August 2003 due to a political donation scandal. Even as "grassroots president"

The current President Roh Moo-hyun, who has come to power, has also been exposed to cronies who accepted bribes and was impeached. If the Zheng Mengjiu scandal is finally confirmed to be related to the 2002 general election, Roh Moo-hyun, who has always been tough, may inevitably bow his head to apologize to the people.

Family governance spawns internal transactions

The general model of a Korean consortium is that a family controls the central company of the consortium. In order to achieve the purpose of passing down the management rights of the consortium, the family will weave complex ownership relationships and control all the companies of the consortium with less funds.

This Hyundai Group scandal alsoThe loopholes in the operation and management system of South Korean corporate consortia were exposed.

The majority of South Korean corporate consortia are family-owned, and their strong family consciousness has affected the advancement of modern corporate system reforms.

The chairman of Hyundai Group Zheng Mengjiu himself inherited the control of Hyundai Motor Group from his father, Zheng Zhouyong, the founder of Hyundai Group. Zheng Yixuan, 35-year-old son of Zheng Mengjiu, was promoted to the position of CEO and president of Kia Motors in March last year. The procuratorial agency suspected that the recent series of internal acquisitions and capital operations by Zheng and his sons were all preparations for Zheng Yixuan to obtain the right of inheritance.

This kind of well-arranged organizational system is not uncommon. Recently, the Seoul court subpoenaed two senior executives of the Samsung consortium for "violating the trust regulations" to assist the children of Samsung consortium chairman Lee Jianxi to buy stocks in a subsidiary company of the consortium at low prices.

Such an arrangement can easily cause conflicts of interest between the company itself and the family that controls the company. The South Korean government has always attached great importance to preventing such internal transactions. Since the late 1990s, it has legally strengthened the transparency of company information and the protection of small shareholders. After the Asian financial crisis in 1997, the improvement of corporate governance became an important topic in Korea.

The main problem with the current consortium system is that consortium owners are unwilling to separate ownership from management; the core problem is that the family that owns the consortium only holds part of the shares but wants to control the entire enterprise.

South Korean consortia generally set up a central company, and the consortium family has a controlling stake in the central company. In order to achieve the purpose of passing the company from generation to generation, the consortium family meticulously weaves a network of various subordinate companies and indirectly controls Various branches. Through the complex ownership structure of these companies, they can control the entire consortium business kingdom without a huge amount of capital, and thus control and expand their huge business empire.

A person in the Korean securities industry said with emotion: "As long as the next generation of the consortium family wishes to inherit the position of chairman of the consortium, they can always figure out a way."

The road to institutional change is obstructive and long

The problems exposed by the consortium have become a shackle for the further development of South Korea's economy, but it is unrealistic to eliminate the consortium economy. The consortium has already controlled the economic life of South Korea. The only way out now may be to increase the transparency of the consortium’s business activities.

Although South Korean government officials are still willing to regard corporate consortia as the cornerstone of South Korea’s economic miracle, these large consortia have long been increasingly severe due to their ambiguity with politicians and bureaucrats and their backward corporate system. Criticism.

Affected by the consortium economy, South Korea’s political and economic activities rely largely on informal personal relationships rather than institutionalized market transactions. Some cultural factors such as birthplace, family status, elite political system where power is concentrated in the hands of a few people, and the "invisible web" between the government and companies have all become the main reasons for the growth of corruption in South Korea. As bribery scandals frequently appear in the newspapers, the public's trust in politicians and business leaders is getting lower and lower.

In addition, South Korea’s consortium-led industrialization has accelerated monopoly and capital concentration. Almost all profitable economic activities are in the hands of large companies, and small and medium-sized enterprises have been deprived of their competitive opportunities. Compared with other Asian competitors, the stocks of many Korean consortia are considered to be of low relative value. The slow governance reform of the South Korean consortium is very detrimental to the South Korean stock market. A report by Merrill Lynch pointed out that the average share price of South Korean companies is only 9.3 times their estimated earnings in 2006, which is 30% lower than the average level of Asian stock markets.

In view of the fact that the consortium family used the complicated equity network to transfer funds internally to gain control of the entire consortium exposed by the modern scandal, some Koreans believe that eradicating the consortium economy may be more beneficial to Korea.

However, considering the huge influence of corporate consortia on South Korea’s economy and even international affairs, eradicating the power of consortia may have disastrous effects.

The influence of corporate consortia on Korean social life has been profound. Their names appear in all aspects of Korean society, including cars, television, baseball teams and even hospitals. In 2003, the four largest consortia of Samsung, Hyundai, LG, and SK totaled US$111.7 billion in exports, accounting for 58% of South Korea’s total exports. They also together accounted for 1/3 of South Korea’s total market capitalization, and in 2003 South Korea’s foreign investment accounts for 43%. Last year, Samsung Group’s total sales reached US$150.8 billion, which is equivalent to South Korea’s annual budget.

Now, the South Korean government has begunFormulate some laws and regulations to prevent consortia from recklessly expanding their businesses. Many scholars who study Korean corporate governance and political culture believe that Zheng Mengjiu's arrest may be a good start.

(Ma Jing)


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Label group:[suv] [Korean companies] [Hyundai Kia] [Hyundai Group] [Korean politics] [Political contributions

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