LS moves closer to Hanjin KAL’s white knight role vs Hoban

Hanjin KAL Corp., the largest shareholder of Korean Air Lines Co., is strengthening its alliance with LS Group, the parent of LS Cable & System Inc., to brace for a potential management dispute with Hoban Group, a South Korean construction and power cable manufacturer.

LS Corp., a holding company, is set to sell 65 billion won ($46.4 million) worth of bonds to Korean Air in June. They are exchangeable into 387,365 shares of LS Corp. by 2030, equivalent to a 1.2% stake.

LS said in a regulatory filing on Friday that the proceeds will be used to repay 100.5 billion won in three-year loans from Korea Development Bank (KDB), coming due in September.

However, market insiders say that LS is highly likely to redirect the money to raise its stake in Hanjin KAL to bolster Hanjin KAL Chairman Cho Won-tae's control.

The proceeds from the exchangeable bonds are enough to buy a 0.79% stake in Hanjin KAL, based on its Friday’s closing price of 122,700 won.

Hoban Group, the parent of Hoban Construction Co. and Taihan Cable & Solution Co., has raised its stake in Hanjin KAL to an 18.46% stake from 17.44% following the purchase of additional shares last week.

In comparison, Chairman Cho and his affiliates control 20.09% of Hanjin KAL as of the end of March.

Hoban’s additional share purchase sparked market speculation that it could reignite a management dispute with Hanjin KAL, driving the latter’s share price higher by its daily limit of 30% for three consecutive days last week.

The new bond issuance comes after LS and Hanjin signed a memorandum of understanding (MOU) in late April to expand their cooperation in sectors like the aerospace industry and in maximizing shareholder returns.

The two groups have been in separate conflicts with Hoban Group.

LS VS HOBAN

LS Group, specializing in electrics, materials and energy businesses, has been in dispute with Hoban Group. It has been in a legal fight with Hoban Group’s key arm Taihan Cable since 2019 over patent infringement.

LS Cable also alleged that its proprietary design for a subsea cable manufacturing plant was illegally leaked to Taihan Cable. Police launched an investigation into the allegation last year.

Amid escalating tensions, Hoban acquired a roughly 3% stake in LS Corp. early this year, in what appears as a preemptive move to gain the upper hand in negotiations over the ongoing patent infringement lawsuit.

HANJIN VS HOBAN

Hanjin's dispute with Hoban dated back to 2022 when its Chairman Cho was embroiled in a conflict with his sister Cho Hyun-ah over the control of Hanjin KAL.

During the sibling rivalry, Hoban Group secured a 16.44% stake in Hanjin KAL in 2022. Hoban was widely expected to back his sister in a proxy war, but the dispute ultimately ended in favor of the chairman.

Including shares held by friendly shareholders – Delta Air Lines Co. with a 14.90% stake and KDB with a 10.58% stake – Hanjin KAL Chairman Cho could exercise management control over around 46% of the company.

On May 15, Hanjin KAL transferred treasury shares equivalent to a 0.66% stake to its employee welfare fund, narrowing the gap with Hoban to 2.3 percentage points.

The treasury shares granted to the fund are now eligible to cast votes.

Write to Chae-Yeon Kim and Bo-Hyung Kim at [email protected]
 

Yeonhee Kim edited this article.