Can Chey pay out $1B divorce settlement without touching SK stake?

Posted on : 2024-05-31 17:44 KST Modified on : 2024-05-31 17:52 KST
Already facing financial difficulties, the ongoing uncertainty presented by the SK Group chairman’s divorce trial has the chaebol on edge
SK Group Chairperson Chey Tae-won speaks at a summit of business leaders from South Korea, Japan and China held in Seoul on May 27, 2024. (Yonhap)
SK Group Chairperson Chey Tae-won speaks at a summit of business leaders from South Korea, Japan and China held in Seoul on May 27, 2024. (Yonhap)

A Seoul High Court ruling ordering SK Group Chairperson Chey Tae-won to pay 1.38 trillion won (around US$1 billion) to his estranged wife Roh Soh-yeong in a divorce settlement has left SK Group in a panic. 

Chey controls the company with his 17.73% stake in SK, so selling his stake would open the company’s leadership to external attacks. At a time when SK Group has been experiencing financial difficulties due to rapid business expansion in the rechargeable battery field, a once-again beleaguered leader has left the megacorporation reeling. 

According to a ruling by a family panel of the Seoul High Court on Thursday, Roh was also entitled to a portion of Chey’s shares in SK, but at her request, the settlement of 1.38 trillion won was ordered to be paid in cash. 

For this second trial of the case, Roh had changed her stance to ask for cash instead of dividing shares in SK, thus avoiding a situation where Chey would have to hand over a portion of his shares. Chey’s most pressing task will be to find a way to minimize the disposition of his shares in SK, as the company’s governance structure has Chey at the top of the ladder, and SK Group, which is under his control, then controlling the company’s subsidiaries.    

SK holds stakes in SK Telecom (30.57%), SK Innovation (36.22%) and SK Square (30.55%). SK Hynix, a semiconductor company that is riding the recent AI wave, is a subsidiary of SK Square. 

SK Group lies at the heart of this problem, but Chey and specially related parties (such as relatives) own only 25.57% of the company. Chey owns 1,297,542 shares (17.73%), valued at 2.514 trillion won (based on Thursday’s closing price). If Chey sells his stake to raise about 1 trillion won in cash, it could weaken his control. The ruling highlights the weaknesses of South Korea’s chaebol governance system in which individuals control conglomerates while only having a minority stake. 

“Chey’s control of the group is still fragile,” assessed Park Ju-gun, the head of the research firm Leaders Index. “As such, he’ll try not to touch his stake in SK.”  

After news of Roh’s triumph in the lawsuit became public, SK shares closed at 158,100 won per share, up 9.26% from the previous trading day. 

Chey has a few options to raise cash, including taking a stock-secured loan or disposing of unlisted stakes. However, according to online documents from the Financial Supervisory Service, Chey has already secured loans and liens on 7,499,030 shares of SK (as of April 2024) from financial institutions. Realistically, it won’t be easy for him to borrow more than 1 trillion won by pledging shares. 

Therefore, attention is focused on Chey’s private equities in SK Siltron,in which he has a 29.4% stake.  
 
“Chey may consider disposing of his stakes in unlisted companies such as SK Siltron to protect his stake in SK Group,” said Lee Sang-heon, an analyst at Hi Investment & Securities.  

Chey’s stake in SK Siltron has been the subject of controversy, with the Korea Fair Trade Commission imposing a fine on him due to suspicions of self-interest in the acquisition process, which the court overturned. Chey also holds stakes in SK Chemical (67,971 shares), SK Discovery (21,816 shares), SK Telecom (303 shares), and SK Square (196 shares). 

For now, Chey’s appeal to the Supreme Court is likely to buy him time. 

SK Group is facing a wealth of trials and tribulations. The deteriorating financial structure of its affiliates, including SK On, has forced the company to reorganize its business, while its CEO is embroiled in a personal dispute. The group’s total borrowings soared from 61 trillion won in 2019 to 117 trillion won in 2023. 

By Jun Seul-gi, staff reporter 

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