Chapter 43: A Study on the Competitiveness and Mid- to Long-Term Management Prospects of Hando Steel

Report: “A Study on the Competitiveness and Mid- to Long-Term Management Prospects of Hando Steel.”

1. Extremely weak financial structure.

2. Excessive financial costs due to over-reliance on external borrowing.

3. Significant losses are certain.

4. Reckless investment that could have a significant impact on the national economy.

5. Cooperation with Pohang Iron and Steel is unavoidable for the survival and development of Hando Steel.

6. Conclusion.

The report concluded that Hando Steel, and the group as a whole, had a weak financial structure. With total group sales of 1.03 trillion won (or 590 billion won excluding internal transactions), it was unreasonable in terms of scale to handle the enormous investment of 4.3 trillion won. Securing funds through real estate sales was deemed unrealistic considering the size of the real estate and current market conditions. Furthermore, obtaining loans from financial institutions would be difficult without policy considerations.

In short, that’s what the thick report said.

Based on 1995 figures, despite having 13 subsidiaries and ranking 18th in the business world, the group’s actual sales were only 400 billion won.

Hando Group, and especially Hando Steel, was a sandcastle built on debt. This sandcastle was about to collapse in a month.

The fact that this report came from Soonyang Group meant that Hando Steel’s bankruptcy was already anticipated in business circles.

However, no one knew that Hando Steel was just the beginning.

Why did Chairman Jin throw this report at me?

Was he thinking about the aftermath of Hando Steel’s bankruptcy? Or was he planning to acquire the bankrupt company?

The latter was definitely more likely. Considering Soonyang Heavy Industries, Soonyang Machinery, and Soonyang Motors, it was tempting enough, provided they could acquire it at a rock-bottom price.

Considering Soonyang Group’s retained earnings, acquiring a bankrupt company wouldn’t be difficult.

Moreover, with Soonyang’s lobbying power, getting trillions of won in debt written off as part of the acquisition terms wouldn’t be a big deal. Ten key figures, 1 billion won each. For 10 billion won, patching up trillions of won in losses with taxpayers’ money—hadn’t that happened more than once?

What worried me was the 1 billion dollars in hot money from the US among Hando Steel’s external borrowings. At the current exchange rate of 800 won, interest payments and principal repayments weren’t a big problem, but in a year, they would be impossible to pay.

Hando Steel was a poison dart frog.

Swallowing it would slowly spread the poison, and if an antidote wasn’t found, it could lead to death. The antidote was dollars, a huge amount of dollars.

Since I had the antidote, I could save whoever swallowed it. The only decisions left were who to let swallow it and how much to charge for the treatment.

It was an easy decision. Since I wanted to charge a few of Soonyang Group’s subsidiaries as a treatment fee, I wouldn’t stop Grandpa if he wanted to swallow the poison dart frog.

***

“Production capacity is 800,000 M/T per year. The chairman and his family own 34.65% of the shares, giving them control of management. Since 1989, losses in the construction sector have caused the debt ratio to exceed 300%, and reliance on borrowing exceeds 50%. The creditor banks have deemed it irrecoverable.”

“Have they started collecting the debts?”

“Yes, they should have started a year ago… They must have been bribed heavily because the creditor banks didn’t budge.”

The meeting that started at 7 a.m. on Friday was entirely about Hando Steel.

“What’s the total debt?”

“3,687 billion won, excluding the 1 billion dollars from the US.”

Chairman Jin looked at Lee Hak-jae and said,

“Chief Lee, no matter how I think about it, it doesn’t make sense. How could they borrow so much money to build one steel mill?”

“Based on the US-based Nucor Corporation, it could be done for 1.6 trillion won. Of course, our environments are different due to cheaper land, low facility introduction costs thanks to the slump in the steel industry, and purchasing appropriate equipment at the lowest price through our own engineering rather than on a turnkey basis. Still, at least 1 trillion won must have leaked somewhere.”

Inflating costs and siphoning off the money through internal transactions was a specialty of the chaebol groups, but the Hando Group was doing it way too much.

More than half of the group’s total sales were internal transactions!

This wasn’t a loophole; it was outright robbery.

Chairman Jin, who quickly straightened his naturally frowning face, continued his questioning.

“How much debt can we get written off?”

“First, we can get the Korea Asset Management Corporation to buy the debt from the financial institutions, and at that time, we can get about 2 trillion won written off. Then, we buy the Korea Asset Management Corporation’s bonds at half price. That will cost us 800 billion won.”

“The dollars won’t be possible, right?”

“No, but we can extend the repayment period since the government will guarantee the payment.”

“YS… He’s strict, will it work?”

“Hando Steel is Hando Group’s flagship company. Since Hando Group will be dismantled anyway, we need to minimize the fallout. He’ll approve it.”

Chairman Jin’s mind started calculating.

One billion dollars was 800 billion won, making the total amount 1.6 trillion won. He had no intention of paying 1.6 trillion won of his own precious money to acquire it.

Soonyang’s funds could be used temporarily during the acquisition, but they had to be recovered immediately.

“What should we grab when Hando Group falls apart? Something profitable.”

“80,000 of the 100,000 pyeong of Hando Steel’s Busan steel mill site, excluding the logistics base. If we prevent the creditor banks from touching it and build apartments there for pre-sales, we can secure a fair amount.”

“Anything else?”

“40,000 pyeong of land in Jangji-dong and 10,000 pyeong in Gaepo-dong. However, this land is owned by Hando Construction, not Hando Steel.”

The minds of the group’s key figures attending the study meeting were working diligently.

They all understood the chairman’s intention to take over Hando Steel for next to nothing.

“Chairman.”

Jo Dae-ho of Soonyang Motors, who hadn’t said a word until now, spoke for the first time.

“We have information that Daehyun Group is also aiming for it.”

The study became so quiet you could hear Chairman Jin breathe.

Chairman Jin, his face already red, gritted his teeth.

“When did you find out?”

“I received a call this morning. A supplier for Daehyun Automobile casually mentioned it. He said he was being entertained at a room salon and was rambling.”

“Damn it…”

Daehyun Group was no longer a competitor. To Chairman Jin, who already considered Hando Steel his own, they were just a band of robbers trying to steal his company.

“Find out what those Daehyun bastards are up to first. We’ll revise the acquisition strategy after that.”

The meeting was over. They had to focus all their efforts on stopping the band of robbers. As everyone got up and gathered their documents, Vice-chairman Jin Young-ki opened his mouth with a smile.

“Did you see Do-jun’s interview article?”

At the vice-chairman’s words, the presidents of the subsidiaries didn’t forget to offer their belated greetings.

“Congratulations, Chairman. He was truly impressive.”

“I didn’t know young Master Do-jun was a national figure. Congratulations.”

Chairman Jin’s stiff expression relaxed as he nodded.

“Indeed. I didn’t know that kid would achieve such results. Isn’t he impressive?”

“But Father, is Do-jun really applying to Seoul National University’s law school?”

“Why? Do you think he’ll fail?”

“With his grades? Of course not. I just thought you cherish him, so I assumed he’d major in business administration or economics.”

“He inherited 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 him be. It’s not bad to have a prosecutor general in the family.”

Chairman Jin casually waved his hand at Jin Young-ki, who kept trying to gauge his reaction, as if it was a trivial matter.

This would further ease Lee Bang-won’s wariness.

“By the way, where is Young-joon now?”

“He’s been working in London since last year. He’s probably learning the practicalities of finance.”

“Tell him to come back.”

“Do you mean after he wraps things up in London?”

Vice-chairman Jin Young-ki’s heart pounded, wondering if his son’s exile was over.

“Yes. Have him participate in this Hando Steel acquisition. And he needs to get married too. Let’s have the wedding next spring.”

“Yes, I will prepare thoroughly.”

Lee Bang-won would now become complacent.

***

“Was the homework too difficult?”

“…Yes.”

As I answered dejectedly, my grandfather showed even more curiosity.

“Do you even know what the homework was?”

“If Hando Steel goes bankrupt, Soonyang Group will acquire it, right?”

My grandfather’s smile overshadowed his curiosity.

“Why did you think that company would go bankrupt?”

“The content of the report was very negative about Hando Steel.”

“What made you think Soonyang would acquire it?”

“If you weren’t interested in the acquisition, you would have covered the impact of the changes in the steel industry on Soonyang Group after the bankruptcy in more detail. When a fire breaks out next door, what’s important is whether it will spread to our house, not why the fire started or whether there are valuable things in the burning house.”

“Correct. That’s exactly it.”

Chairman Jin slapped his knee.

“But I can’t find the answer.”

“What answer were you trying to find?”

“How to bring Daehyun Group to its knees. If I had figured that out, I would have received a sports car key today.”

I scratched my head as if regretting it, subtly observing my grandfather’s reaction. But why does he look like that? Did I go too far? My surprised grandfather’s inner thoughts were completely exposed.

“W-Why did you think Daehyun would jump into the acquisition?”

“Among the companies involved in steel manufacturing—Pohang Iron and Steel, Soonyang, Daehyun, Ajin, and Sammi, Dongkuk—only three are big enough to acquire Hando Steel. But Pohang Iron and Steel has no reason to be interested in Hando, leaving only us and Daehyun.”

“Just because they are big doesn’t mean they’ll jump in. There has to be a clear reason…”

“Come on, Grandpa, you’re interested, so wouldn’t Chairman of Daehyun be too…”

Providing specific data to explain why Daehyun would want Hando Steel would be the correct answer, but right now, an intuitive answer was more appropriate.

“They lost their leading position in the heavy industry sector, which was far ahead of Soonyang’s, so I don’t think they’ll let this opportunity pass.”

“No businessman would pour astronomical amounts of money to acquire a company just because of pride.”

“Wouldn’t they at least try because of pride?”

My grandfather finally burst into laughter.

“Hahaha. That’s right. That guy is the kind of person who would take risks for pride.”

I waited until his pleasant laughter subsided and then cautiously asked.

“But wouldn’t acquiring this company cost a huge amount of money? Just the debt alone is several trillion won…”

As if he had been waiting for my question, my grandfather approached me.

“Do-jun, what’s ‘other people’s money’ in English?”

“Other people’s money? Other People’s Money?”

“That’s right. That’s business. Managing with other people’s money, not your own. But Korean chaebols are a little different.”

“How so?”

“As the English words imply, ‘People,’ they use the people’s money.”

People’s money, is he talking about taxes?

“When acquiring struggling companies, they demand debt write-offs from the creditor banks, and the resulting holes are filled with taxes. This is the most reliable way to grow the group’s size. And it always works.”

They think of trillions of won in public funds as their own pocket money. There’s no sense of guilt whatsoever. They don’t even consider it a dishonest method in the first place.

I knew the essence of chaebols, but hearing it directly from my grandfather gave me goosebumps.

My grandfather, with a victor’s expression, patted my frozen shoulder.

“Oh, and Do-jun. For the time being, let’s keep the things you said in the interview as genuine. Got it?”

***

1996, the last day of the year.

My grandfather and the entire family gathered at the Soonyang Hotel.

It was a celebration for me for ending the year with good results and a welcoming party for Jin Young-jun, who had returned home after a long time living abroad.

“Wow, our youngest. You’ve really stirred things up. I saw the interview. Congratulations.”

“Ah, Older Brother Young-joon. Thank you. And congratulations on your return too.”

My hand, as I shook his extended hand, trembled slightly.

“Future Prosecutor General, I’ll leave my illegal inheritance to you later. Take care of it for me. Hehe.”

My whole body trembled slightly as he whispered in my ear.