Has Hanjin’s ship sailed?

Hanjin HQ in Seoul

The Hanjin Group is one of South Korea’s largest family-owned conglomerates – or, as they say in Seoul, chaebols. It owns Korean Air and Jin Air, and has major holdings in shipping and industry. And like the other chaebols, it is at once admired for its wealth and power, notorious for its endemic corruption and shady political ties, and resented for the ease with which it can crush competition by upstart entrepreneurs as well as for its executives’ ability to routinely escape punishment for even the most egregious acts of embezzlement, money laundering, and bribery.

As we reported last week, a newly hatched activist fund called Korea Corporate Governance Improvement (KCGI) – which is now Hanjin’s second largest shareholder – is pushing for reforms of the sort that one South Korean government after another has promised for decades and that the current president, Moon Jae-in – who, upon taking office in 2017, insisted would be a central objective of his administration – has utterly failed to carry out.

Moon Jae-in

Now, as we noted, KCGI is seeking to get Hanjin to sell off its hotel chain, which includes major hostelries in Los Angeles and Hawaii, and – in a truly radical move – to force the firm to ditch the traditional practice that is at the heart of chaebol culture: namely, the passing on of top leadership positions from one generation of the company’s founding family to the next. Instead, KCGI wants Hanjin to agree to have its leaders appointed by an independent committee.

We’re still waiting to see how that drama works itself out. Meanwhile, a new subplot has developed – one that underscores the fact that the once seemingly invincible chaebols have entered a new era of vulnerability. At this point it should be noted that in 2016, a division of Hanjin, Hanjin Shipping, declared bankruptcy and was liquidated. It had been the world’s seventh largest container shipping line. The loss of Hanjin Shipping was a major blow to Hanjin, to the chaebols, and to the South Korean economy.

Hanjin’s shipyard at Subic Bay

Now Hanjin is facing another significant loss, also involving shipping. Hanjin Philippines is a division of the chaebol that runs a shipyard at Subic Bay, the former U.S. naval base. It is the biggest shipyard in the Philippines, and one of the biggest in the world, and has been a cornerstone of the Philippines’s ambition to become a top-flight shipbuilding nation.

Hanjin Philippines, however, has not been doing well. In January, the division, which has massive assets but is cash-poor, declared bankruptcy, defaulting on $400 million in bank loans – the largest such bankruptcy in the history of the Philippines and an event that was described as being, for the world’s shipping sector, equivalent to the collapse of Lehman Brothers. It filed for “court-assisted rehabilitation,” meaning that it wanted the courts to help it arrange debt payment with five banks in that country that had lent it a total of $412 million.

An image from the glory days of Hanjin Shipping

This month, it was reported that Hanjin Philippines might soon have to let go of thousands of employees, and that several other international corporations, most of them based in Europe but one based in North America, might be willing to help Hanjin out by snapping them up. Another report indicated that “at least two major Chinese shipbuilders” were looking into a much more sweeping move – namely, taking over Hanjin’s entire operation in the Philippines.

This would be a drastic development indeed. For one thing, a Chinese purchase of Hanjin Philippines would also contribute to ongoing expansion of the PRC’s presence in East Asia, and would be troubling news for the U.S. and all of its allies in that region. In its own small way, it could cause a shift in the worldwide balance of power.

Part of Korean Air’s fleet

In South Korea, however, such a purchase would have an even stronger impact. Like the disappearance of Hanjin Shipping, it would not only mark yet another downturn for the Hanjin Group. It would also be a blow to South Korean national pride, which rested for decades upon the bedrock of its powerhouse economy. Not least, it would further tarnish, in the eyes of South Koreans at both the top and bottom levels of society, the already fading luster of the chaebol model. So it is that the closing or sale of a shipyard in the Philippines may have a very real impact on the volatile economic developments in the Republic of South Korea.

Daniel Och’s dirty money

Lately, we’ve taken a look or two at Kyle Bass, who, as we discovered, is, among other things, awfully chummy with the swindling thugs who run Argentina. But when it comes to making sweetheart deals with slimy heads of state, he’s got nothing on fellow New York hedge funder Daniel Och, the CEO and Chairman of Och-Ziff Capital Management Group. For the story of Och’s career is, to a remarkable extent, an account of intimate, mutually profitable, and utterly unconscionable transactions with some of the most brutal tyrants of our time.

och
Daniel Och

First, a brief introduction: Och (who’s been described as “one of the few men for whom the description steely-eyed is truly apt”) is a native New Jerseyan who, after graduating from the Wharton School, spent eleven years at Goldman Sachs. In 1994, with a $100 million cash infusion from the heirs to the Ziff publishing fortune, he founded Och-Ziff. By 2013, he was #17 on Forbes’s list of the year’s 25 top-earning hedge funders, with a $400 million take. In addition to his principal residence, an apartment at 15 Central Park West in Manhattan – the “world’s richest address” – he owns a $20.3 million, 12,000-square-foot mansion in Aspen, Colorado, that boasts 7 bedrooms and 9.5 baths.

Och has had more than his share of controversy. In 2011, Och-Ziff was sued by an ex-employee who claimed he was owed $7.9 million in pay and stock. Last year, a group of Och-Ziff shareholders sued the firm for issuing “false and/or misleading statements and/or fail[ing] to disclose material adverse facts” about its activities. According to the New York Observer, when Lehman Brothers went down the drain, its lawyers suspected Och of short-selling their company “into the dirt.” Indeed, court papers filed in 2010 charged that Och-Ziff had spread rumors “that helped bring down Lehman Brothers.” As the Wall Street Journal reported, Och-Ziff “likely disseminated and/or was the recipient” of a story “that Lehman had spun off debt to two Lehman-controlled hedge funds to reduce [its] leverage” – a lie that was allegedly propagated “by unscrupulous market participants looking to profit” from shorting Lehman stock. 

But what about those transactions with tyrants? Tune in tomorrow.