SK Chairman Chey to Lose Management Rights

With the ongoing merger and acquisition of SK Corp. dark clouds have been cast over management normalization of SK Global.

As Crest Securities becomes the largest shareholder of SK Corp., it is impossible for the company to aid its subsidiaries, while creditors are asking for support from the SK Group including SK Corp. on the condition of SK Global`s management normalization.

As a result, creditors may file for court receivership or liquidate the company according to the result of the estimation, since there is no reason for them to put up with losses and revive SK Global without help from the other subsidiaries.

Accordingly, Chey Tae-won, who offered all his shares in SK subsidiaries to creditors for management normalization of SK Global, is unlikely to regain them. In effect, Chairman Chey has lost all management rights.

Sovereign Asset Management, the holding company of Crest Securities who recently became the single largest shareholder of SK Corp. told the company that there should be no unlawful aid to the subsidiaries. In a statement on April 14, Sovereign said that its goal was to establish shareholder value. It also made clear its intention to oppose helping insolvent subsidiaries which might lower the value of SK Corp.

SK Global had to put off its second self-resuscitation plan to be submitted by April 15, since Sovereign`s stance was against the sale of gas stations and investment from large shareholders, the main part of the plan. Moreover, SK Telecom, in which foreign investors and minority shareholders are still interested, already announced in a statement that there would be no aid that goes against current laws.

Sovereign is asking SK Corp. for corporate governance by the board of directors in order to raise the value of the company. It is not interested in returning Chairman Chey`s shares.

SK Corp. Chairman Chey`s shares of the listed subsidiaries amount to a total of 30 billion won at market price, which falls short of the 2 trillion won that he cosigned for a SK Global loan. His shares include 0.11% of SK Corp., 7.5% of SKC, 3.31% of SK Global, and 6.84% of SK Chemical. Moreover, if the unlisted shares are evaluated accurately, the amount would be less, according to experts.

For the management normalization of SK Global, creditors have demanded that SK Corp. purchase SK Global`s gas stations at a reasonable price and not collect the 2 trillion won for oil on credit.

“If such demand does not proceed, management normalization will be impossible, because SK Global`s 70% of sales and 90% of profits come from transactions with subsidiaries such as SK Corp. and SK Telecom,” said a senior creditor official. “It is meaningless for creditors to help the company.”

In order to pressure SK Corp., creditors are reviewing plans to file for court receivership or sell SK gas stations to other oil firms such as LG, which will deal a harsh blow to sales, since the sales network of gas stations is a major sales outlet for its refinery operations. Moreover, if creditors file for court receivership, SK Corp. will not be able to collect a substantial portion of the 2 trillion won in trade receivables.

Although there is room for negotiation, creditor arguments are not strong enough to see through an optimistic future for the company.

Joong-Hyun Park Do-Young Kim sanjuck@donga.com nirvana1@donga.com