(EDITORIAL from the Korea Times on July 31)

Little has changed: Kumho Asiana case highlights problems of overexpansion

Economists agree the heavily leveraged corporate takeover boom among
family-controlled conglomerates turned Korea into a victim of the 1997-98 Asian
financial crisis. The ongoing trouble at the Kumho Asiana Group, the nation's
eighth-largest chaebol with assets of 38 trillion won ($30 billion), reaffirms
that old habits do die hard.

The seed of misfortune was sowed three years ago when the group bought out Daewoo
Construction & Engineering at 6.4 trillion won by raising 3.5 trillion won from
investors with a promise to repurchase their stocks at 32,500 won per share
unless prices reached a certain level by the end of this year. Daewoo C&E's share
price hovers around 13,000 won now, imposing Kumho Asiana with a financial burden
of 4.2 trillion won. In short, it was tantamount to taking out a three-year loan
at compound interests of 9 percent per annum.
Of course, it would have been difficult for the group officials to predict the
global financial crisis and consequent economic recession at the time of the
takeover. Still, the acquisition of the building arm of the now-defunct Daewoo
Group by Kumho Asiana, a chemical-transportation group holding one of the
nation's two flag carriers, sent not a few analysts' heads shaking with doubts,
then.
The problem is that Kumho Asiana is not the only chaebol to recently show undue
appetite for corporate expansion and now be forced to resell what they bought in
another bout of massive restructuring. The worldwide liquidity crunch has served
as a timely reminder of the unchanged habits of chaebol in this regard.
Encouraging chaebol's resumption of old practices, however, was part of the Lee
Myung-bak administration's various policies, which sharply eased their
equity-investment limits, allowed them to run banks and introduced devices to
tighten the families' grip on management control, including the so-called poison
pill system.
Government officials say all these pro-business ??? rather, pro-chaebol ???
policies were intended to induce investment, but most of the conglomerates'
promises have so far remained as such: words, not deeds. Cho Suk-rai, chairman of
the Federation of Korean Industries, a chaebol lobby, even went as far as flatly
rejecting calls for investment on Wednesday, saying politicians and militant
unions are keeping them from making investments, even if they want to.
If and when Kumho Asiana experiences prolonged difficulties in restructuring by
selling assets, the liquidity at creditor banks will be adversely affected, and,
in the worst case, require the injection of public funds, or taxpayer money.
This, in turn, would further strain financial resources for other sectors,
including the small- and medium-sized enterprises that hire more than 90 percent
of all workers.
From the standpoint of the average worker, therefore, nothing could be more
irrelevant than the competition among chaebol to grow, which, at its worst, could
damage the national economy and, even at its best, simply lead to the growth of
specific chaebol posing as global giants unbound by nationality.
Which is why the government should supervise the conglomerates' business
activities far more strictly, requiring responsibilities corresponding to their
rights and privileges. And this is the only way to turn the Kumho Asiana case
into a blessing in disguise for the national economy.
(END)