Korean activist fund KCIG to sell Hanjin KAL stake to local builder

South Korea’s activist fund Korea Corporate Governance Improvement Fund (KCGI) has decided to sell its stake in Hanjin KAL, the holding company of Hanjin Group, to a local construction company. The sale reignited uncertainties over the control of Korean Air Lines Co.

KCGI is set to unload all of its 17.41% stake in Hanjin KAL, the parent company of Korean Air, to Hoban Construction Ltd., according to investment banking industry sources on Monday. The value of the sale was not available, although the stake was estimated at 690.4 billion won ($562.7 million) based on Hanjin KAL’s market capitalization.

The fund was the second-largest shareholder after group chairman Cho Won-tae and his affiliates' 20.93% stake as of the end of 2021. Other major stakeholders included Bando Engineering & Construction Co. with 17.02%; Delta Air Lines Inc. with 13.21%; and the Korea Development Bank with 10.58%.

FAMILY FEUD

KCGI has been in a dispute over Hanjin Group with Chairman Cho since 2018 when it bought a stake in the holding company. In 2020, it formed an alliance with the chairman’s sister Cho Hyun-ah, a former vice president of Korean Air, and Bando.

But the KDB’s support of the chairman created a rift within the alliance when the state-run bank participated in Hanjin KAL’s rights offering to aid Korean Air’s acquisition of Asiana Airlines Inc. in November 2020.

The fund later filed an injunction with South Korea's court to ban Hanjin KAL from selling new shares to the KDB, but the request was rejected. In April of last year, the three-party alliance terminated the Hanjin KAL shares joint ownership agreement, ending the family feud over control of Korean Air.

KCGI decided to sell the Hanjin KAL stake as its existing funds were maturing sequentially. The fund is currently holding 11.6 million shares in the company through eight special purpose companies. Four of them have expired earlier this year, while one is scheduled to mature on Jan. 10, 2023.

It was unclear if Hoban will join hands with Bando to challenge Cho’s management rights, as the combined stake of the two builders and the chairman’s sister amounts to 37.02%, lower than the combined 42.13% stake held by the chairman and his friendly shareholders, including Delta and the KDB. The chairman's sister holds a 2.59% stake in Hanjin KAL.

But the possibility remains open for Hoban to buy more shares, given its ample cash holdings, industry sources said.

Write to Jun-Ho Cha, Nam Jeong Min and Si-Eun Park at chacha@hankyung.com
Jongwoo Cheon edited this article.