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Hanjin chairman’s death exposes cruel effects of owner risk on stocks

Stock prices of South Korea’s flagship carrier Korean Air and Hanjin KAL soared Monday, buoyed with grave irony by the news of Chairman Cho Yang-ho’s death earlier in the day.

Analysts are seeing the price soar as the “cruel effect” of an “owner risk” -- a risk that stems from investors’ distrust in the owner of a company -- which is more defined in Korea due to massive family-owned enterprises called chaebol.

As of 10:10 a.m., Korean Air shares increased 4.7 percent to 33,400 won ($29.33), while the stocks of holding firm Hanjin KAL rose 23.81 percent to 31,200 won. They closed 1.88 percent and 20.63 percent higher from the previous closing of 32,500 won and 30,400 won, respectively. 

Korean Air’s sister companies Jin Air and the Korea Airport Service also ended 3.4 percent and 4.76 percent higher at 24,350 won and 46,200 won, respectively. 

Late Hanjin Group Chairman Cho Yang-ho (Yonhap)
Late Hanjin Group Chairman Cho Yang-ho (Yonhap)

“At the moment, with Chairman Cho’s death, Hanjin’s stock price could show a greater variability with an expected dispute over ownership,” said Song Chi-ho, an analyst at eBEST Securities.

“The competition to purchase stocks could drive up the stock price, but at the same time, the largest shareholder could feel threats regarding management (control) and may attempt to damage shareholders rights, which could cause the value to fall,” he added.

Hanjin Group has been at the center of controversy involving owner risks in recent years with the owner family’s misbehavior affecting its subsidiaries’ stock price, fueling uneasiness among shareholders.

Cho himself was to attend trial on multiple charges, including alleged embezzlement and breach of trust. Prior to his death, the 70-year-old chief was removed from Korean Air’s board room, just last month.

Monday’s events come as the effects of an owner risk are becoming more prominent on the nation’s key bourses and stock index, brewing concerns that shares of local firms are determined excessively by their owners’ actions.

Namyang Dairy Products’ shares wavered the day after drug-related allegations were made against Hwang Ha-na, the founder’s granddaughter, on April 1. The major dairy producer had to release a statement denying Hwang’s ties to the firm’s management to protect its share value.

Last month, shares of Kumho Asiana Group’s subsidiaries, including Korean Air’s industry rival Asiana Airlines’ shares, spiked once its chairman Park Sam-koo decided to step down from all his posts. Asiana Airlines jumped 15.06 percent to 3,935 won throughout its trading on March 28, the day of Park’s announcement, and eventually closed at 3,520 won, which was 2.92 percent higher from the previous closing.

Meanwhile, Vice Chairman of Shinsegae Group Chung Yong-jin on Friday acquired 140,000 shares worth about 24 billion won of E-mart, its discount chain operator. This is projected to boost the share price of E-mart according to analysts, and it already closed 4.66 percent higher from the previous trading day on Friday at 179,500 won.

“With the heightened competition with e-commerce and other online platforms, the share price of E-mart has been recently lackluster, but Chung’s latest move to acquire its stake will bring a positive effect on its shares,” Oh Rin-ah, an analyst at eBEST said. 

By Jung Min-kyung (