Golden Spoon Investment Portfolio - Chapter 296

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This chapter was translated by Lunox Novels. To support us and help keep this series going, visit our website: LunoxScans.com
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296. Whenever you say you have something to tell me now, my heart feels like it’s about to sink.

“Did you just say a foreign exchange crisis?”

Seok-won answered in a slightly subdued voice, facing Park Tae-hong, who couldn’t hide his startled expression.

“Yes.”

His older brother across from him also spoke with a bewildered face.

“A foreign exchange crisis? Isn’t that going too far?”
“It’s a conclusion I’ve reached after carefully examining every situation that unfolded following last year’s reverse Plaza Accord agreement between the United States and Japan, multiple times over.”

At Seok-won’s serious demeanor, devoid of any hint of levity, Park Jin-hyung tried to mount a rebuttal but closed his mouth instead.
Park Tae-hong was equally at a loss for words.
Had anyone else made such a claim, he would have sternly rebuked them for excessive delusion, but Seok-won had surprised both men multiple times with his exceptional investment instincts and foresight, so he couldn’t simply dismiss it.
Moreover, Seok-won had accurately predicted the possibility of a hostile M&A targeting Midopa Department Store and had personally taken charge of resolving the management rights dispute with Donghae Group, which made his words feel all the more weighty.
As the atmosphere grew grave, Park Tae-hong straightened his upper body and spoke.

“As you say, it’s true that current account deficits continue to accumulate and foreign investment capital is pouring in, but we’re earning substantial dollars through exports every year. I honestly find it hard to believe that a foreign exchange crisis might come.”

His older brother nodded in agreement, as if sharing the same thought.
Likely, most people, including the government and financial authorities, would hold similar views to Park Tae-hong’s.
After all, last year alone had recorded over 125.2 billion dollars in exports, earning massive foreign currency.

“Of course, even if we’re running deficits as you say, with substantial dollars flowing in every year, under normal circumstances the possibility of a crisis occurring would be extremely slim.”

Seok-won continued speaking, alternating his gaze between his father and older brother, who were listening intently.

“However, if an unexpected variable emerges, the situation could change dramatically.”

At that, Park Tae-hong’s eyebrows furrowed.

“When you say an unexpected variable, are you referring to what you mentioned earlier about the Bank of Japan adjusting their BIS capital adequacy ratio?”
“The liquidation of large-scale yen carry trades is certainly a destabilizing factor, but since that’s already a confirmed event, I wouldn’t classify it as an unexpected variable.”
“So there’s something else?”
“If problems arise, the abnormally high short-term foreign debt and the massive influx of foreign investment capital into the stock market will become the real bomb.”

When Chairman Park Tae-hong’s expression showed confusion, Seok-won explained it more clearly.

“You’re aware that Finance Companies have been increasingly engaging in what’s called maturity mismatch—borrowing short-term debt from abroad where interest rates are cheaper than domestically, then lending it out as long-term loans to generate profits.”

Chairman Park Tae-hong nodded, recalling that Go Young-il, president of Daehung Securities, had once attempted to pursue this type of lending business.

“Beyond just Finance Companies, I understand that most major conglomerates are borrowing substantial amounts of foreign currency loans through the Hong Kong capital market.”

At that, Park Jin-hyung, who had been listening, interjected.

“To raise funds domestically, you have to bear interest rates exceeding 14%. But if you tap into foreign debt, you only pay half that—7 to 8%—so it’s natural that companies prefer foreign debt.”
“Exactly. The larger the loan amount, the more the interest differential compounds. If I were in their position, I’d want to use foreign debt too.”

Seok-won nodded in agreement.
In truth, the high domestic lending rates stemmed from internal structural issues.

‘As the economy developed rapidly, corporate demand for investment capital exploded, but domestic savings couldn’t keep pace. So naturally, the cost of money became expensive.’

Moreover, inflation was rising as rapidly as economic growth, so the Bank of Korea deliberately maintained high interest rates.

“But the problem is that most foreign debt consists of short-term bonds with short maturities, and the total amount is so massive it’s becoming unbearable.”

Since short-term debt carried lower interest rates than long-term bonds with longer repayment periods, Finance Companies tapped into short-term foreign debt under one year to maximize profits.
Corporations did the same, though not to the extent of Finance Companies—they still preferred short-term debt within one to three years.

“Of course, I understand that Finance Companies and corporations do this not just because short-term debt has lower interest, but because they can borrow as much foreign debt as they need whenever they want. When you can get cheap loans anytime, it would be foolish to pay expensive interest for long-term debt.”

Seok-won’s gaze turned toward Chairman Park Tae-hong, who sat with his arms crossed.

“This was possible because liquidity has been overflowing until now. But the situation is changing.”

At that, Chairman Park Tae-hong spoke in a grave voice.

“If yen-denominated funds withdraw, borrowing foreign debt won’t be as easy as it used to be.”

Seok-won nodded in agreement and continued.

“Moreover, with the United States shifting its policy stance toward a strong dollar, it’s pouring more fuel on this fire. Even if interest rates are lower here than in the States, if the exchange rate rises, the interest rate differential gets wiped out—and in the worst case, we could end up paying even higher interest.”

The two men, sensing the gravity of the situation, had fallen silent, their expressions growing serious as they listened.

“We’re using a managed floating exchange rate system that’s practically fixed, yet the dollar rate that hovered around 700 won last year has already climbed to 826 won. Just looking at this, it’s no exaggeration to say warning bells have already started ringing.”
“….”
“In this precarious situation where we don’t know when the bomb will explode, the government’s foreign exchange reserves are only 36.5 billion dollars—woefully insufficient to handle a crisis.”
“That’s not enough?”

Park Jin-hyung asked with a puzzled expression.

“The Ministry of Finance and Economy announced not long ago that total external debt has reached 85.83 billion dollars, and there’s a strong possibility it’ll exceed 100 billion by year-end. A significant portion of that will be short-term debt. And as I mentioned, once the economic downturn accelerates and the exchange rate skyrockets, short-term debt that must be repaid in dollars will become a nightmare in an instant.”
“Good heavens.”

Park Jin-hyung, imagining the scenario Seok-won described, unconsciously swallowed hard.
If that happened and the interest payments suddenly ballooned, it would truly be catastrophic.

“When that occurs, foreign investors in the domestic stock market will likely rush to withdraw their funds to avoid exchange losses. If foreign hot money flows out all at once like this, the government’s 36.5 billion dollars in foreign exchange reserves will melt away like ice left under the blazing summer sun.”

As Seok-won finished his lengthy explanation, the study room fell into a heavy silence unlike before.
The story had been far too shocking for anything else.
Seok-won sat quietly, waiting for his father and brother to compose themselves.
After a moment, Chairman Park Tae-hong let out a deep sigh and spoke first.

“From the moment you said you had something to tell us, I sensed something important was coming, but I never imagined you’d bring such a bombshell.”
“Indeed.”

Park Jin-hyung responded with a tense expression.
There was a hint of resentment in his gaze as he rubbed his weary eyes.
With the Donghae Group incident finally resolved, he’d been relieved, thinking they could finally catch their breath—only to have another headache brought up. No wonder his head was pounding.

“What’s your assessment of the probability that a currency crisis will actually occur?”

Chairman Park Tae-hong asked, and Seok-won answered immediately without hesitation.

“If the government’s OECD accession goes through, the domestic financial market opens, hot money inflows increase, and short-term debt continues to surge as it has been, then I’m certain the crisis will come.”

Seok-won didn’t even give me a chance to respond before continuing.

“And in preparation for that, I’ve had the Venture Capital Fund convert all of its liquid reserves into dollars.”
“Already?”
“Yes.”

I couldn’t help but marvel at such swift decisiveness.
Seeing Seok-won’s conviction that a currency crisis wasn’t merely possible but inevitable, Park Tae-hong let out a groan of distress, his expression growing increasingly troubled.

“So we should do the same as the Venture Capital Fund—convert our holdings into dollars.”
“That’s not all. We need to implement austerity measures, minimizing expenditures like factory expansions, while simultaneously repaying all debts to eliminate interest burdens. Since that’s unrealistic, the best approach would be to restructure existing loans into long-term arrangements where possible and liquidate all foreign exchange loans.”

Seok-won offered his counsel with unwavering resolve.
At that, Park Jin-hyung leaned forward, his expression troubled as he spoke.

“The foreign exchange loans we’ve taken on are substantial. Converting all of them to won-denominated loans won’t be easy, and the interest burden will be far greater than what we’re paying now.”
“Difficult or not, if we don’t prepare now, we’ll be swept away helplessly when the crisis hits.”
“It’s only a possibility—we can’t be 100% certain a currency crisis will actually occur.”

Though Park Jin-hyung attempted to counter, Seok-won’s resolve remained unshakeable.

“By the time you feel the crisis clearly, it will already be too late.”

From my perspective, knowing what the future held, the frustration was nearly unbearable.
Yet it was only natural that my insistence on immediate action wasn’t readily accepted.
In the suspended silence, our gazes locked across the empty space, a brief tension hanging between us.
Park Tae-hong opened his mouth, his voice heavy and measured.

“It was the same with Midopa Department Store.”

As my two sons turned to look at me, I leaned back against the sofa and continued.

“You warned us early on that there were structural problems with the group’s governance and that we needed to address them. But we ignored your warnings and kept putting it off, and then Donghae Group targeted Midopa Department Store—our Achilles’ heel—with a hostile M&A attempt, nearly costing us the entire group.”
“That was….”

Park Jin-hyung fell silent, his expression one of helplessness as he pressed his lips together.
He too had dismissed the warnings as unlikely until the crisis actually struck, and had delayed taking action under the pretext that restructuring the governance would require tremendous effort and capital—only to suffer the consequences.

“One mistake is enough.”

Park Tae-hong gazed at his eldest son, who would inherit the group in the future, and asked him a question.

“Isn’t that right?”

Park Jin-hyung then nodded, his expression thoughtful.

“Yes, sir. You’re absolutely correct.”

Park Tae-hong shifted his gaze and glanced briefly at Seok-won before continuing.

“That said, we can’t make a decision based solely on what the second son is saying. So you, as the eldest, work with Manager Gil and thoroughly investigate whether there’s truly a significant possibility of a crisis. After we see what you find, we’ll decide how to proceed.”

Since this was an important matter that would determine the group’s future management direction, Park Tae-hong responded with caution. He also arranged to verify the possibility once more, ensuring his eldest son wouldn’t feel slighted or harbor any resentment.

‘This is probably the best I can do for now.’

While Seok-won was disappointed they weren’t taking immediate action, he was satisfied that his father and brother had clearly recognized the crisis.
Park Tae-hong picked up his teacup, then set it back down when he noticed the coffee had already gone cold. He exhaled a small sigh.

“Anyway, a foreign exchange crisis this time? Every time, you drop some unexpected bomb on us. Now whenever you say you have something to tell me, my heart sinks like a stone.”

As Park Tae-hong muttered in a gruff tone, Park Jin-hyung also looked at Seok-won across from him with a complicated expression and nodded in agreement.

“I feel the same way.”

Seok-won shrugged as if to say it was unfair.

“Still, isn’t it better than being blindsided without warning?”

At his brazen attitude, Park Tae-hong clicked his tongue.

“Tsk. If only you’d keep quiet, you wouldn’t be so annoying.”
“That’s true enough.”

Park Jin-hyung eagerly nodded in agreement.

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This chapter was translated by Lunox Novels. To support us and help keep this series going, visit our website: LunoxScans.com
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