Mount Fuji Collapses
A few days later.
Ilseong Electronics First Bankruptcy!
Television and newspapers blared the news of Ilseong Electronics’ bankruptcy in massive headlines. The public was stunned. Ilseong Electronics was a giant electronics company that everyone in Korea knew. It was so large that nearly every household owned at least one Ilseong television or washing machine. Ilseong Group had once dreamed of becoming Korea’s top conglomerate, even challenging Mirae Group, and Ilseong Electronics was its flagship subsidiary. It boasted the largest workforce within the group, and when suppliers were included, the number swelled to hundreds of thousands. It would have been stranger if the news of its bankruptcy had not caused shock.
The event was so significant that the Blue House reportedly convened an emergency meeting of senior economic officials immediately afterward.
Ilseong Electronics’ bankruptcy stemmed from its inability to meet $2 billion in foreign-currency bond obligations.
The creditor, surprisingly, was ID Group. No extension granted?
As time passed, more specific details emerged.
“Oh? Our company’s name made the papers too?”
One article in the Korea Economic Daily openly named ID Group as the creditor. That was unusual. When a company goes bankrupt, reports rarely specify which promissory note or bond triggered it. The responsibility lies with the debtor who failed to manage its debts, not the lender. Yet in this case, ID Group’s name stood out prominently in the coverage of Ilseong Electronics’ first bankruptcy.
“They should have written the article properly,” Yoo Jae-won muttered, reading the piece in the study of his San Francisco home overlooking the bay. The $2 billion bond issued by Ilseong Electronics had been purchased in his personal name. After his massive windfall from Gulf War oil futures, he had taken a personal dividend and used the remainder to buy stakes in Ilseong Group affiliates. He had exercised influence proportional to those holdings. Uncomfortable with that, Chairman Choi Hyun-hee restructured the circular shareholding around Ilseong Motors, his hobby project. Because Ilseong Motors was still unlisted, Yoo Jae-won could not buy even a single share. Later, flush with cash from the semiconductor boom, Choi Hyun-hee bought back all of Yoo’s remaining stakes. However, the premium was far higher than before, so he could not pay the full amount at once. Part of the balance was converted into dollar-denominated bonds—the very $2 billion issue now coming due.
Naturally, the creditor’s name should have read “Yoo Jae-won,” but the newspaper had apparently found that too burdensome and substituted ID Group instead.
“What’s their angle?” Yoo Jae-won tilted his head, unable to understand the article’s intent even after reading it through. The piece essentially argued that Korean companies should help one another, yet money-rich ID Group had ignored Korea’s circumstances and driven Ilseong Group’s second-largest core affiliate to the brink of first-round bankruptcy.
“Are they trying to get people to throw stones at me?”
If Ilseong had wanted an extension, they should have approached him first. But neither Choi Hyun-hee nor Choi Jae-young, nor even Chief of Staff Lee Hyuk-jae, had made a move. Whether they had already given up because the opponent was Yoo Jae-won or had some other plan entirely, there had been no contact until the day before maturity. When the deadline arrived, they admitted they lacked the funds to pay. That was what caused the bankruptcy. The article therefore served no purpose other than to cast stones at Yoo Jae-won.
Curious, he checked the comments. There were almost no malicious posts directed at him on either the Nextcom news page or the newspaper’s own website. Instead, most comments criticized the owner family for expanding octopus-like into Ilseong Motors and causing management failures, or expressed concern about what would happen if Ilseong Group collapsed.
“And then there’s Japan.”
Ilseong Group maintained extremely close ties with Japan. That was why Yoo Jae-won had considered the foreign-currency bonds of Ilseong Electronics a two-birds-with-one-stone move. They had obtained memory-semiconductor know-how from Japan, along with financial support. There had long been rumors that this was why Ilseong Group’s shareholding structure had grown so complicated, and Yoo Jae-won had already confirmed those rumors with his future knowledge.
The next day, given the gravity of the situation, the Blue House issued an immediate statement.
Contrary to market expectations, the response was the most orthodox possible. There would be no special favors such as emergency funding. The stock market opened in a sea of red. Yet there was one concession: a seven-day grace period before bankruptcy. During those seven days, if the $2 billion was repaid, the bankruptcy crisis would vanish. The debt itself was not forgiven; only time was granted to raise the money—effectively the same as extending the bond’s maturity by a few days. Some questioned why the grace period had been set at seven days when it could have been as long as a month.
Meanwhile, the creditor banks that had lent money to Ilseong Electronics prepared for the bankruptcy. Among them, the most influential voice naturally belonged to Vice Chairman Choi Kang-wook, Yoo Jae-won’s representative. A creditor’s influence at such meetings was proportional to the size of its claims. Ilseong Electronics carried an especially high debt ratio. Korean conglomerates typically borrowed heavily to secure liquidity, then expanded aggressively—an approach that generated large profits, though a single semiconductor production line could require trillions of won. Yoo Jae-won’s $2 billion was substantial, yet when converted to won, several banks had lent even larger amounts. In theory those banks should have held more sway, but in reality Choi Kang-wook dominated the discussions. The only people who could speak loudly to banks were those who had deposited large sums. In that sense, Choi Kang-wook was second only to the government. The White Tiger Fund had deposited nearly identical amounts of operating capital across major commercial banks—between $3 billion and as much as $5 billion in precious dollar deposits. If necessary, the money could be converted and used immediately. Currently, the White Tiger Fund was the only entity in Korea managing deposits of that scale. Should Ilseong Electronics ever come up for sale, the White Tiger Fund was the most likely buyer. An overseas sale was possible in theory, but selling one of Korea’s few remaining high-tech companies abroad would be politically awkward. The White Tiger Fund, being 100 percent Korean capital, posed no such problem. Rumors even circulated that the Blue House’s decision to handle the matter strictly according to law and principle without special favors had been made in reliance on the White Tiger Fund.
Korea’s entire business community—and society at large—held its breath, waiting to see whether Ilseong Electronics could repay $2 billion within a week. Yoo Jae-won was no exception. Waiting was tedious, especially when the outcome was obvious. Even if Ilseong Electronics were given a full month, raising $2 billion would be impossible. Even if the entire Ilseong Group scraped together every last cent to save the subsidiary, it would not be enough. The fact that the grace period had been shortened from a possible thirty days to seven was, of course, the result of Yoo Jae-won’s influence.
“I wonder how things are progressing in Japan.”
The Japan operation had begun even earlier than the Ilseong Electronics matter. The opening salvo had been the Kobe Steel quality-fabrication scandal, and nearly ten days later the issue was still very much alive. On a day like this, forcing himself to focus on work would only reduce efficiency and risk introducing bugs. There was still an hour left until quitting time, but he felt far more inclined to monitor the flow of Japanese public opinion. Besides, no one would scold him for not working—this was one of the privileges of being the owner.
Having made up his mind, Yoo Jae-won closed every development tool and ID Talk window that filled his desktop. A message box popped up asking whether he wanted to save the XX Project.
“Ah, look at me. I almost forgot to save.”
Saving frequently had become second nature to him, yet today his mind had clearly been elsewhere. He pressed Y, confirmed the project had saved properly, and immediately opened his web browser. It was filled with fascinating articles—everything from the Kobe Steel story to Chevron’s lawsuit plans. Not all of them were pleasant, however.
Japan was preoccupied with the Kobe Steel scandal, yet it had not missed the shifting currents in American politics. Yoo Jae-won’s idea of using North Korea to contain a newly opening China had begun to attract attention in Washington. Reports from the East Asia Strategy Institute had been distributed to political journals and U.S. senators, and rumors that President Clinton was taking an interest prompted a nervous reaction from Japan. After all, Japan and North Korea had never established diplomatic relations and their relationship was extremely poor. Resentment accumulated since the Korean War ran deep. Japan in particular strongly suspected North Korea of abducting Japanese civilians—an accusation Pyongyang always denied. Japan was also more sensitive than South Korea to North Korea’s nuclear and missile programs. Whenever the United States showed any conciliatory posture toward Pyongyang, Japan mobilized its full diplomatic resources to block it and redirect attention back to the North Korean threat. The Kobe Steel scandal was no different. Japanese media were quickly burying related articles by amplifying the North Korea issue. Just as Yoo Jae-won was browsing Japanese internet opinion, his ID Talk chimed.
“Yes, I’ll check it right away.”
Yoo Jae-won returned to the Japanese Nextcom news page. Among the articles marked “new,” one headline contained the name Abe. That was the follow-up Vincent had mentioned. The title was so provocative he could not help clicking it.
Japan had many people named Abe, but this referred to the most famous one. Abe was the rising star of the Liberal Democratic Party and currently served as Chief Cabinet Secretary in the Mori Yoshiro cabinet. The position of Chief Cabinet Secretary—essentially the prime minister’s secretary and the cabinet’s spokesperson—offered excellent visibility with voters because the holder appeared daily in the media. Although Abe had entered politics only in 1993 and possessed a modest résumé, he had reached the post thanks in part to the support of political heavyweight Junichiro Koizumi, but even more to the influence of his maternal grandfather, Nobusuke Kishi. Kishi, the éminence grise of Japanese backroom politics, had manipulated the political world until the day he died. Had he a son, he would have passed the mantle directly; having only a daughter, he had taken the promising Shintaro Abe as his son-in-law and successor. That position had now passed to Abe Shinzo in 1993.
The article did not claim that Chief Cabinet Secretary Abe had been involved in the Kobe Steel scandal while in office. Rather, it noted that before entering politics Abe had worked at Kobe Steel and had been in charge of quality control at the time—making it impossible for him not to have been involved in the fabrication. The piece concluded by predicting that the ongoing investigation into Kobe Steel’s quality fraud would therefore be difficult to conceal.
“Whoever wrote this did an excellent job.”
Vincent Greenhill even added a joke. It was precisely the lack of that vaunted craftsmanship that had caused the Kobe Steel scandal to erupt in the first place. Japan had long cultivated an image of artisanal spirit through family businesses—sushi restaurants and small workshops passed down through generations—while behind the scenes companies like Kobe Steel had been cutting corners. In any case, as the article suggested, the Kobe Steel quality-fabrication scandal had yet to make any real progress. Nearly a week had passed since the story broke, yet Japanese police had taken no action. Chevron had demanded a rigorous investigation, but Kobe Steel kept repeating that it was conducting an internal probe. Meanwhile, the number of articles was steadily decreasing—clear evidence that someone was determined to bury the matter. Now that a story linking Chief Cabinet Secretary Abe to the scandal had surfaced, burying it would be far more difficult. Yoo Jae-won was intensely curious to see how the Japanese government and public would react once they learned that one of the cabinet’s most powerful figures was entangled in the Kobe Steel affair.