Posted February. 04, 2001 19:30,
The bankruptcy of Hankook Real Estate Trust (HRET) will make payments to hundreds of building contractors difficult and may cause a series of failures in the construction industry, which is already wobbling under slow business conditions.
It would entail capital erosion of the Korea Housing Guarantee that is supposed to take over the job of continuing work on apartment houses under construction by the HRET, taking upon itself an additional burden of more than 150 billion won to heavily affect its solvency. In the event that the Korea Housing Guarantee, a public corporation responsible for warranting the provision of apartments being built by private firms goes wrong, the consequences would be devastating indeed.
Over 12,000 households that have applied for the purchase of apartments in the care of the HRET are bound to suffer great losses. A much worse fate awaits the 3,600-odd people who contracted for stores and office units not covered by housing guarantee. They could forfeit more than 250 billion won paid in mid-term installments. Mostly marginal trades people or small investors from the middle class, the buyers are likely to lose tens or hundreds of millions of won invested or suffer delays in acquiring the property or receiving refunds.
Since there were no bankruptcies of public corporations until recently, investors can hardly be held wholly accountable. Investor confidence in public corporations enabled the HRET to continue its expanded warranty on real estate following the currency crisis years ago. Its bankruptcy, caused by sloppy management and negligence in governmental supervision, might well be called a bankruptcy of confidence in the government.
To begin with, it was wrong for a public corporation like the Korean Appraisal Board to establish a real estate trust company as its subsidiary. Most construction firms have been in a position to run such a trust company. Its chief executive officers, drawn from the Ministry of Construction and Transportation or political parties, were obliged to accept the trust of unprofitable real estate from financially troubled firms under pressure of lobbying that undermined its capital standing. As is the case with most public corporations, the HRET was reduced to an instrument of job-hunting for retired employees of its parent company -- the Korean Appraisal Board. The placement of those from the appraisal arm who had no experience in the line of development trust made matters worse.
Signs that the HRET was going belly up began emerging a year ago. But the supervisory government authorities and the creditor banks took a wait-and-see attitude in vain anticipation of a turnaround in the building industry, complicating the downside management of the firm. The Ministry of Construction and Transportation and the Financial Supervisory Service are busy shifting the blame for the failure to one another.
Since its inception, the government has raised battle cries for reform in the four major sectors of business, banking, public corporations and labor. Of them, the public sector including public corporations is still straggling far behind. There were those who preyed on public corporations without their owners or masters, while others who are small businesspeople and middle-income investors are forced to heave despairing sighs of frustration. A thorough inquiry into the truth of the catastrophe and punishment of responsible officials and managers is in order.