Golden Spoon Investment Portfolio - Chapter 368

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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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368. They haven’t grasped that the doctrine of too-big-to-fail no longer applies.

August 14, 1997.
Dark clouds hung thick over the slopes of Inwang Mountain visible through the office windows, threatening rain at any moment.
President Kim Sung-gyu, seated on a leather sofa in his spacious office with plush carpeting, spoke with visible discomfort.

“So you’re saying you won’t extend the Kichang Group’s debt moratorium agreement that expires next week—you’ll simply let it terminate?”

Finance Minister and Deputy Prime Minister Lee Eun-hyung, receiving the president’s gaze, answered with a stern expression.

“That is correct, Mr. President.”

President Kim Sung-gyu leaned back, regarding Deputy Prime Minister Lee Eun-hyung with an uneasy look.

“Surely you’re not unaware of what will happen to the economy if the Kichang Group defaults when the market is already struggling.”
“I am fully aware it will have severe consequences.”
“Then what is your reason for refusing to extend the debt moratorium agreement?”

Deputy Prime Minister Lee Eun-hyung exhaled softly at the president’s probing question, his eyes narrowing slightly, before responding.

“I too am concerned about the negative impact on the economy, but if we continue to drag this out, the cleanup will become far more difficult later. I had no choice but to make this decision.”
“Explain in detail what the specific problem is.”

Deputy Prime Minister Lee Eun-hyung then withdrew a handkerchief, wiped the perspiration from his brow, and spoke carefully.

“First, the enormous debt of 9.5 trillion won tied up in Kichang Group subsidiaries, including automobile operations, places an enormous burden on the financial sector. Particularly problematic is handling the 800 billion won in payment guarantees held by non-bank financial institutions—leasing companies, installment finance firms, and finance companies—that did not participate in the debt moratorium agreement.”

Chief Secretary Gu Hyung-gi, seated across from him, interjected with a furrowed brow.

“If we use public funds to repay the debts held by non-bank financial institutions, the primary and secondary financial institutions locked into the debt moratorium agreement and unable to recover their loans will object. Yet if we leave it as is, and non-bank financial institutions seize the opportunity during the presidential transition period to recover their funds, we cannot avoid the worst-case scenario of the Kichang Group being forced into default.”
“Then wouldn’t it be sufficient to extend the debt moratorium agreement while forcing non-bank financial institutions to participate as well?”

As the president spoke of this complex and thorny problem with such ease, Deputy Prime Minister Lee Eun-hyung inwardly groaned.
Yet he could not let it show, so he carefully explained why that was not possible without revealing his frustration.

“If we do that, smaller third-tier financial institutions with weaker financial positions compared to first and second-tier banks will collapse in a domino effect.”
“Hmm.”
“Moreover, the bonds tied up in Kichang Group have severely reduced the lending capacity of commercial banks. As a result, the liquidity shortage is worsening to the point where even large corporations are struggling to secure loans.”

President Kim Sung-gyu furrowed his brow at a problem he hadn’t anticipated.
Watching the President’s expression, Deputy Prime Minister Lee Eun-hyung continued.

“The biggest problem is that the management is actively obstructing rather than assisting the government and creditor consortium’s efforts to save Kichang Group through restructuring.”
“Is that really true?”
“Yes.”

Deputy Prime Minister Lee Eun-hyung nodded, meeting the President’s raised eyebrows.

“Like other troubled companies, we planned to first remove the management, then have the creditor consortium conduct thorough due diligence to save viable companies and liquidate those beyond recovery.”

Deputy Prime Minister Lee Eun-hyung recalled the actions Kichang Group’s management had taken during the payment moratorium period and spoke with a stern expression.

“But despite the urgent situation, Chairman Ko Jung-hwan is refusing the creditor consortium’s demand for his resignation with various excuses.”
“….”
“In the meantime, Kichang Group’s debt hasn’t decreased—it’s actually increased by hundreds of billions of won, further burdening the government and creditor consortium.”
“Tsk. He’s ruined the company and yet his greed knows no bounds.”

President Kim Sung-gyu also clicked his tongue briefly, his expression clearly displeased.
Seeing this, Deputy Prime Minister Lee Eun-hyung leaned forward and spoke.

“If we extend the payment moratorium this time, the deadline will expire again during the presidential election period. If the problem erupts then, the shock we’ll have to endure will be far greater than now.”
“Hmm.”

Seeing President Kim Sung-gyu hesitating to make a decision, Deputy Prime Minister Lee Eun-hyung drove home his final point.

“Of course, it will have a very significant negative impact on the election as well.”

As expected, President Kim Sung-gyu’s face contorted at the mention of the election’s negative impact.
Unlike the United States, Korea’s constitution stipulated a single five-year presidential term, so President Kim Sung-gyu couldn’t run for president again.
Still, it was better for him if the ruling Democratic Justice Party continued in power rather than losing the presidential election and the administration changing hands.
Especially since it had recently come to light that Hanwha Group, which had defaulted early this year, had given massive bribes to government, political, and financial figures during the process of securing loans and permits for the Dangjin Steel Mill construction, creating signs that it could develop into a political scandal involving President Kim Sung-gyu’s son.
President Kim Sung-gyu lightly tapped the armrest of the sofa with his fingertips as he asked.

“If we don’t extend the payment moratorium and end it as is, what happens to Kichang Group?”

Sensing the president’s apparent step backward from his initial stance, Lee Eun-hyung, the Deputy Prime Minister for Economic Affairs, quickly responded.

“As I mentioned earlier, after the creditor consortium conducts detailed due diligence, companies with viable restructuring potential will receive support such as debt forgiveness or maturity extensions to facilitate smooth third-party acquisitions. Companies deemed difficult to revive will proceed through liquidation procedures.”
“So inevitably, a considerable number of workers will lose their jobs during the liquidation process.”
“That is true, but it is an unavoidable sacrifice necessary to save even part of the group.”
“Hmm.”

President Kim Sung-gyu sat with his arms crossed, his brow furrowed in deep contemplation.
Lee Eun-hyung, having explained all the reasons why the Kichang Group situation could no longer be delayed, watched the president with anxious anticipation.
Silence hung heavy in the spacious office as raindrops began to fall beyond the windows.
After some time had passed, President Kim Sung-gyu finally opened his tightly closed lips.

“We still have a few more days, so let me deliberate carefully before making a decision.”

Lee Eun-hyung could not hide his disappointment.
Yet on the other hand, he understood the difficulty of the decision—tens of thousands of jobs hung in the balance when accounting for Kichang Group employees and their affiliated subcontractors.

“The Ministry of Finance and Economy and the creditor consortium need time to prepare, so you must make a decision within four days at the latest.”
“Understood.”

Hearing the slightly irritated tone, Lee Eun-hyung refrained from pressing further and fell silent.

* * *

Several days later.
Seok-won leaned against his solid wood office desk, watching the television news broadcast.

[…The automotive division of Kichang Group, whose payment moratorium agreement expires this Friday, is expected to continue operating under creditor consortium management of cash flows even after the agreement terminates.
Accordingly, Kichang Automobile and Pacific Automobile are expected to avoid default as debt repayment to financial institutions will be deferred for a certain period, and the automobile manufacturing plant is also expected to operate normally.
However, with net loans from financial institutions reaching a staggering 9.5 trillion won and no clear solution in sight, finding a way to smoothly resolve the Kichang Group crisis and achieve a successful ‘soft landing’ is proving extremely difficult.
For this reason, most experts predict that from an economic standpoint, Kichang Group will inevitably face court receivership after default.
However, this would damage Korea’s external credibility and trigger cascading bankruptcies among affiliated suppliers….]

Seok-won picked up the remote and turned off the television, muttering expressionlessly to himself.

“If management stepped down entirely now and moved swiftly into court receivership, the damage could be minimized. But Chairman Ko Jung-hwan’s greed to retain management rights is dragging us deeper into the quagmire.”

With the presidential election approaching, mass unemployment and economic turmoil would inevitably disadvantage the Blue House and the Democratic Justice Party.
Knowing this, Chairman Ko Jung-hwan was buying time, holding out to extract concessions from the government and creditors to preserve his management rights.

“Under normal circumstances, such tricks might have worked, but they’re useless against the massive tsunami of the IMF crisis that’s about to hit.”

They would only amplify the damage and suffering.

“They should have learned from watching Hanwha Group collapse that the old saying ‘too big to fail’ no longer applies, but it seems they haven’t.”

A fierce storm was bearing down on their doorstep, yet they still failed to grasp the gravity of the situation. I could only sigh at their pathetic obliviousness.
When the vibration alert sounded, I pulled out my cell phone from my pants pocket, checked the number on the screen, and answered the call.

“It should still be the middle of the night in New York. What’s happened?”
[I’m calling because there’s urgent news to report.]

From the slightly strained tone in Landon Shore’s voice, I sensed that something bad had occurred.

“Tell me what it is.”
[Following Moody’s placing Korea on a watch list last month, S&P is also planning to downgrade Korea’s credit rating from “stable” to “negative.”]
“…So it’s come to that after all.”

Though I had anticipated this, hearing that Korea’s sovereign credit rating had been downgraded, I couldn’t hide my troubled expression.

[Once S&P makes its announcement, the scale of foreign investment capital fleeing Korea will accelerate significantly.]
“With exchange rates already rising and capital flight occurring to avoid currency losses, a credit downgrade will intensify that trend even further.”

The exodus of foreign investment was problematic, but what was even more critical was that a downgraded credit rating could completely cut off Korea’s access to foreign currency.

‘The Asian financial crisis and the chain of bankruptcies among major domestic conglomerates have made foreign currency procurement more difficult than before, but we’ve still been able to borrow dollars by paying higher interest rates.’

However, if the sovereign credit rating fell and the exodus of foreign capital accelerated, the situation would change completely—as clear as day.

[Major media outlets including the Wall Street Journal are beginning to publish articles warning of Korea’s foreign exchange crisis, and if the sovereign credit rating is downgraded this time, it will be difficult to avoid attacks from hedge funds as you mentioned.]
“I think so too.”

I continued speaking in a subdued voice.

“There will be movement soon. Keep a close watch on the hedge funds, and report immediately if you see any signs of activity.”
[Understood.]

After ending the call, I walked toward the large floor-to-ceiling window on one side of the President’s Office.
The sunset was painting the sky between the towering buildings a deep crimson, as if foretelling a bleak future ahead.

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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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