SK Chairman Gives up Management Rights

SK Group Chairman Chey Tae-won offered all of his SK shares to creditor banks as collateral and is on the verge of giving up management rights of the company.

Creditor banks requested that Chairman Chey give up shares in SK`s subsidiaries, as they have decided that SK Global, alleged to have falsified 1.5 trillion won in profit, be under the Corporate Restructuring Promotion Law.

The alleged improprieties caused financial markets to fluctuate seeing exchange rates and interest rates surge.

“Chairman Chey decided to offer all of his shares as collateral,” said President of Hana Bank Kim Seung-yu, the major creditor bank of SK Global, in a press conference on Wednesday. “He submitted to the bank a memorandum to offer collateral, a written consent to dispose of assets, and a memorandum to abandon a claim for damages, as well as the seal and the certificate of his seal impression.”

The SK Group is expected to hand over real shares to the creditors on Thursday.

As a result, Chairman Chey has no legal authority to lead the SK Group and the subsidiaries will shift to an independent management system from the owner-management system.

The creditors have decided to freeze the bond and debt at home and abroad and take part in joint-management, by applying the Corporate Restructuring Promotion Law, because SK Global might be pressed to pay all the debt at the same time. This decision will be settled in a creditors` meeting on March 19.

The creditors will freeze the bond and debt of 8.2 trillion won at home and abroad, except for general transaction bonds, and draw up a plan on management normalization.

Once applying the law, the creditor banks will suffer a loss of loan, which amounts to 4 trillion won, since they have to set aside 20-50% of the money in allowance for bad debts.

Previously, Hana Bank requested that the chairman offer all of his SK subsidiaries shares as collateral, claiming that he guaranteed 250 billion won out of 450 billion won in the credit balance.

The beleaguered group initially opposed the request, saying that they would offer Chey`s SK Global shares in the form of private assets. Nevertheless, they yielded to the resolute creditors in the end.

On Wednesday morning, the investment firms were overcrowded with investors attempting to sell off the fund that included SK Global`s corporate bonds. They sold a huge amount of government and corporate bonds in preparation for trade with investors, leading to a surge in interest rates. The benchmark 3-year government bond yield rose to 5.20% from 4.69%, while corporate bonds flipped to 5.85% from 5.25%.

The government and investment firms decided not to allow such trades for the time being in order to cushion the impact.

The won to dollar exchange rate rose 15.1 won from the previous day to close at 1245 won, a 5-month high, due to allegations of SK`s accounting shenanigans. The KOSPI also dropped to 520 but recovered to 530 with the help of the program purchase.

Do-Young Kim Chi-Young Shin nirvana1@donga.com higgledy@donga.com