#92 This Might Hurt. The winner's curse. Daehyun Group won the bidding war against Ilseong Group and Jungwoo Group and acquired Asin Motors, but the cost of the acquisition ultimately threw not just Daehyun Motors but all of Daehyun Group's affiliates into a liquidity crisis.
"The winner's curse..."
"The acquisition cost isn't the problem. The cost to normalize its operations will be enormous. In particular, Asin Motors, much like Daehyun Motors, has a very hardline labor union."
I shook my head.
"To secure flexibility in the labor market as demanded by the IMF, they'll have to undergo intense restructuring, which will inevitably lead to backlash from the unions."
At this time in the Republic of Korea, the idea of a lifelong job was taken for granted. It was a time when companies were eager to hire anyone with a university degree.
It was a time when companies would even hand out envelopes of cash to interviewees, begging them not to go to other companies and to work for them instead. But under the harsh economic system of the IMF, the concept of a lifelong job vanished.
"I did mention it to Chairman Song, but he probably won't want to miss this opportunity. The choice is his to make."
"Tsk, what can you do? Cars are something special to Chairman Song."
"Yes, even as I tried to dissuade him, I didn't expect him to listen to me. If Asin Motors were to fall into the hands of Ilseong Group or Jungwoo Group, his title as number one in the domestic car market could be at risk."
Daehyun was already number one in domestic market share, but swallowing the number two, Asin Motors, would allow them to dominate the domestic car market in one fell swoop. It was less about needing Asin Motors and more about protecting their position as number one in the domestic car market.
"Chairman Song will figure it out himself. Right. So, what are you planning to do now?"
I answered my grandfather's question with a wide grin.
"I'm planning to devour Jungwoo Group."
This must have been something even my grandfather hadn't considered, as his eyes widened.
The new year of 1998 dawned, but the atmosphere was not bright. As demanded by the IMF, the government began pressuring the conglomerates as soon as the new year started, announcing the five principles of corporate restructuring. In Seoul alone, more than 100 companies were going bankrupt every day.
It was the highest number ever recorded, and many people lost their jobs in an instant. The KBC broadcast station began airing its gold-collecting campaign. People voluntarily brought out their first-birthday gold rings and wedding jewelry hidden away in their closets, trying to overcome the foreign exchange crisis.
The government dispatched former Deputy Prime Minister Jeong Yong-in to the United States to negotiate the short-term foreign debts of Korean companies and banks. Under JP Morgan's lead, a method used for Central and South American countries in the 80s was proposed, but other commercial banks and European banks strongly opposed JP Morgan's approach.
The reason was that the Republic of Korea was a completely different case from the Central and South American countries. Eventually, in 1998, the meeting of the creditor banks resumed. Special Envoy Jeong Yong-in visited the JP Morgan headquarters.
After listening to Chairman Douglas and Managing Director Ernest explain the negotiation proposal, Special Envoy Jeong Yong-in spoke.
"President-elect Kim Hak-kwon has stated that he will implement every single condition demanded by the IMF. Through restructuring, we will reduce the redundant investments and lax management of the conglomerates and make our country a good place to invest."
Special Envoy Jeong Yong-in did not hastily accept the proposal put forth by JP Morgan. During the transition of power, he could not shorten his own political career by taking actions that would burden the next administration. However, this political move ultimately led to the Republic of Korea negotiating its foreign debt under unfavorable conditions.
Through three days of persistent negotiations, Special Envoy Jeong Yong-in was able to extend the maturity of short-term foreign debt by 90 days until the end of March, but in the end, they failed to reach any agreement.
"JP Morgan's plan doesn't suit Korea. And we were the ones who lent the money, so why is JP Morgan taking the lead? We will proceed independently."
Due to the opposition from commercial banks like Citibank and Chase Manhattan Bank, which had lent large sums of money to the Republic of Korea, the meeting dragged on without progress.
"If they just accept our plan, we could recover at least half of the money tied up in Asia. Why is everyone so against it?"
At Chairman Douglas's words, the JP Morgan executives sighed.
"Because the amount of money we lent isn't that much. This is different from Central and South America. The scale of the national economy is different, too. The commercial banks won't want to lose a major client after the foreign exchange crisis is over."
"Damn it. We could make a profit of hundreds of millions of dollars. Isn't there any other way?"
The key figures at JP Morgan, including the chairman, held marathon meetings, but they concluded that to make a profit, they needed concessions from the other banks. There was simply no solution. In the end, the Korean foreign debt negotiations were handed over from JP Morgan to the main creditor bank, Citibank.
Having grasped the mood on Wall Street, Special Envoy Jeong Yong-in called President-elect Kim Hak-kwon to explain the situation.
"Yes, President-elect. If we can properly exploit the conflict on Wall Street, I believe we can steer the negotiations in the direction we want." —Is there a way?
"We need to appoint Goldman Sachs and Salomon Smith Barney as advisory firms to support us from the outside. Goldman Sachs, in particular, is a company that can exert great influence over Secretary Robert Rubin. I believe they will be of great help." —Proceed with that.
And also mention that Dreamhigh Investment is prepared to acquire all the bonds if a proper agreement isn't reached. It will be strong pressure.
"What? President-elect. Was that... discussed with Dreamhigh?" —We need to be bold.
If it comes to it, we'll have to ask that man, Han Gyeong-yeong, no matter what special favors we have to offer. Show them that we have this card to play. I trust you, Special Envoy Jeong.
"I understand."
After finishing the call with Kim Hak-kwon, Special Envoy Jeong Yong-in was well aware of the power of the new sword placed in his hand. He hadn't fully realized it when he was in Korea, but he felt it after coming to New York. The prestige of Dreamhigh Investment, and the name of its CEO, James Han.
The reopened foreign debt negotiations began at the Citibank headquarters.
"This is the proposal our government is presenting. We request that the maturity of the short-term foreign debt coming due in 1998 be extended by a minimum of one year and a maximum of three years."
Just as an outcry was about to erupt, Jeong Yong-in added.
"If this plan is not accepted, we intend to request that James Han of Dreamhigh Investment purchase all the short-term foreign debt held by the financial institutions."
When James Han's name was mentioned at the debt negotiation table, the creditor banks began to grow anxious. If they fell out with the Republic of Korea now, they could lose a major client in the future.
The creditor banks, which had been pushing their own proposals to gain the upper hand, ultimately decided to accept the South Korean government's plan.
"Very well. If we have the guarantee of the government of the Republic of Korea, we will extend the maturity."
Pressure from the White House, coupled with the news that James Han was backing the South Korean government, caused the stalled negotiations to proceed at lightning speed.
"We will extend the short-term foreign debt by one to three years. In return, the interest rate will be based on the international rate, with an additional spread of 2.25% for a one-year extension, 2.5% for two years, and 2.75% for three years. Are there any objections?"
"No. Thank you for understanding our government's position. The government of the Republic of Korea accepts this proposal."
This dramatically concluded agreement was immediately announced to the press and notified to the creditor banks around the world that had lent money to the Republic of Korea. However, for the South Korean government, this was merely an extension of short-term debt into medium-to-long-term debt.
The government was well aware that without a proper influx of new capital into the Republic of Korea, there was no future. And the more than 50 billion dollars in short-term foreign debt held by the conglomerates was also a problem. In the end, President-elect Kim Hak-kwon decided to meet with Han Gyeong-yeong once again.
I arrived with Han Gyeong-yeong at the hotel where the transition team was located. It was our appointment with President-elect Kim Hak-kwon.
"Please convey my thanks to Chairman Cheon. I received a report that thanks to him, the conglomerates were able to put out an urgent fire."
As soon as I greeted him and sat down, President-elect Kim Hak-kwon expressed his gratitude to my grandfather.
"It's nothing. My grandfather said it was a good deal for him as well."
"It's something even the banks couldn't do. It was a great help to the national economy."
"I'm glad it was helpful."
Kim Hak-kwon sighed as he looked at me with my polite smile.
"I misunderstood Chairman Cheon. I thought he was just a ruthless man who only plays with money."
It was definitely a different reaction than before. Next, Kim Hak-kwon's gaze turned to Han Gyeong-yeong.
"Boss Han, I need you to help us. The short-term foreign debt for financial institutions has been extended with a government guarantee, but the corporations are the problem. I'd like you to invest."
"Hmm..."
Just as I had told him, Han Gyeong-yeong didn't answer right away. Seeing Han Gyeong-yeong hesitate, Kim Hak-kwon grew anxious and spoke again.
"Special Envoy Jeong Yong-in, who is in America, told me. About your standing there. Right now, no one wants to invest in the Republic of Korea. If this continues, not only the conglomerates but the entire nation could end up on the streets. If you help us at a time like this, I will not forget it."
"President-elect, I am an investor. I cannot make investments based on sentiment. Although I manage the funds as the representative, it must be an investment that my clients can understand."
Kim Hak-kwon nodded gravely.
"I know. But if you say you'll do it, they will at least consider it. If you help us this time, I will grant your company many benefits."
"I understand. I will have a discussion with my clients. I will do my best to give you a favorable answer."
"Thank you."
Although he hadn't received a firm commitment, Kim Hak-kwon seemed relieved by Han Gyeong-yeong's positive response, letting out a sigh and leaning back on the sofa.
"It's been over 30 years since I entered politics for the sake of the Republic of Korea. But it's sad that I have to take responsibility for the country in a crisis like this. Huu..."
Kim Hak-kwon said with a dark expression.
"Boss Han. What do you see in the Republic of Korea's future? Can we overcome this crisis and rise again? My aides all give me vague answers. Please, speak frankly."
"Mu-hyeok would know better than I. I also receive a lot of help from Mu-hyeok regarding Korea."
"Is that so?"
At Han Gyeong-yeong's words, President-elect Kim Hak-kwon shifted his gaze toward me.
"I'd like to hear your thoughts. Go ahead and speak."
"This might hurt."
"That's what I want to hear. I always hear what I want to hear from my aides and the bureaucrats. Give me your honest opinion."
I hesitated for a moment before finally speaking.
"Korea will be able to overcome the IMF crisis faster than other countries. It won't be because the government does well, nor because the corporations do well. It will be because the people will voluntarily tighten their belts and try to pay off the debt."
"Hahaha. Are you just going to say nice things as well?"
"The country will escape the foreign exchange crisis through the sacrifice of its people... but the fruits of that labor will be plucked by the conglomerates."
"What?"
I stared calmly at the surprised Kim Hak-kwon.
"The labor market, changed by the restructuring demanded by the IMF, will require the sacrifice of the people. And the power of the conglomerates, revived by public funds and the strength of the people, will grow even stronger."
"Hmm..."
"You must use this opportunity to change the very nature of these corporations. Saving them by indiscriminately injecting public funds will be pointless; they won't know to be grateful. It is best to discard what needs to be discarded and take what you can."
"But if the conglomerates collapse, where will the people work?"
I shook my head at the seemingly confused Kim Hak-kwon.
"Too big to fail! The amount of tax money the government has poured into saving the conglomerates until now is astronomical. Believing in that, the corporations have only filled their own bellies and engaged in lax management."
Kim Hak-kwon couldn't bring himself to deny it and fell silent.
"This is the last chance. A chance to sever the collusive ties between politics and business. What kind of president do you want to be remembered as in history, President-elect?"
"What kind of president..."
I gave a meaningful smile as I watched President-elect Kim Hak-kwon's expression turn serious.
< This Might Hurt. > End