The Financial Supervisory Service, Part 3
President Oh Young-hwan was dumbfounded. So that was where the money had come from to buy the stock—Saudi royal investment, of all things.
Once the royal family was involved, and the Saudi embassy itself had stepped in, this was no ordinary matter.
By national power, Korea was far larger than Saudi Arabia. But Saudi Arabia had oil money in quantities most countries in the world could only envy. How many nations could truly afford to ignore Saudi capital?
In truth, it no longer mattered whether the TRS had been arranged legally or illegally. They only needed a pretext, then an indictment would follow—but if Saudi royal funds were entangled in it, the situation changed completely.
An overreaching prosecution based on suspicion alone could easily spiral into an international diplomatic incident.
"There was no illegal conduct, and they said they would cooperate if we needed any documents, so we’ve suspended the search and seizure for now."
Why is the embassy getting involved in the affairs of a single company?
In any other country, it would have been absurd. But Saudi Arabia was an absolute monarchy, and its royals could move even an embassy if they needed to. What was more, they weren’t even protesting—they were saying they would actively provide any materials required.
Which, in other words, meant they had nothing to hide. And if anyone tried to force the issue, they would not sit still and take it.
Jang Jinaeng, the FSS chairman, asked cautiously, “What should we do?”
They had already gone through with the search and seizure. If they came away empty-handed and backed off now, the FSS would become a laughingstock.
But if they kept pushing, they would only discover there was nothing left to seize.
President Oh let out a sigh. “Call off the investigation.”
News Trigger was the first to run with it, and the other outlets followed only grudgingly.
The internet erupted all over again.
Kim Sung-gwun raised his voice and denounced the move. “Please explain on what grounds the FSS conducted a search and seizure. While no investigation whatsoever is being carried out into the illegal acts of the chairman’s family, demanding raids and document submissions only from private equity funds looks nothing less than taking the chaebol’s side. KSGI will coordinate a joint response with domestic and overseas private equity funds against any unfair investigation from now on.”
The FSS insisted it had been conducting a legitimate inquiry, but foreign investment firms expressed serious concern.
Maybe because of that, foreign investors dumped shares as soon as the market opened, and the stock market fell sharply.
Chairman Ju Min-jae, who had collapsed at the press conference, was still hospitalized.
He had simply blacked out from the shock; there was nothing physically wrong with him, but he deliberately chose not to check out of the hospital.
He had already announced his retirement, and rumors were circulating that his collapse had been an act anyway. Under the circumstances, he judged it better not to show his face in public for a while.
Even from his hospital room, he kept receiving regular reports on the situation.
“So even the FSS investigation and the prosecution’s indictment have failed.”
His eldest son, Ju Cheol-jin, who had come to visit, nodded.
“Yes.”
“I never expected Saudi royal capital to be involved.”
So he refused the document request from the start because he had a backup plan?
They should have indicted Elliott Management first. That would at least have let them shape the public narrative to some extent. Instead, by going after Continue Capital first, they had now made even that impossible.
Has the FSS been tied up as well, just like the National Pension Service?
The other side was playing several moves ahead, as if it had read every card they held.
Ju Cheol-jin asked carefully, “Is there really no way to move the National Pension Service?”
“It’s impossible.”
After the bribery allegations were reported, they had only barely managed to stop the opposition from pushing for a special counsel investigation. If the National Pension Service exercised its voting rights in this situation, the matter would explode again.
Cheol-jin knew it was impossible too. But they had to do something, anything, at this point.
“At this rate, we might really lose at the shareholders’ meeting.”
They still held the advantage.
Excluding the National Pension Service, the valid vote pool accounted for 90 percent of the total. Hanjeong Group’s side had secured about 38 percent of the shares so far, including friendly holdings, while the three-party alliance had about 35 percent including its own friendly stakes.
The problem was the more than 10 percent of minority shareholders who still had not submitted their proxies. If the three-party alliance secured most of those votes, it would be over.
Looking at his son, Chairman Ju asked, “Are you worried?”
Ju Cheol-jin nodded honestly. “Yes.”
They were on the verge of having everything that had once belonged to them taken away. And the problems did not end there. Once their control was stripped from them, would they really be safe?
“Shouldn’t we be buying shares with the slush fund right now?”
Hanjeong Group’s slush fund was worth 2 trillion won. The reason they had been able to accumulate such an enormous sum was simple: the group’s core business was construction. Over the course of several years, they had siphoned it off and disguised it as investments.
When you ran a conglomerate that large, there was no shortage of information you could exploit, so multiplying money was easy enough. Even if they took a loss, they could always order affiliates to buy in at the right price.
Profits went into their own pockets; losses were spread across the shareholders. That was the method chaebols used all the time.
But as the economy developed and social scrutiny tightened, it had become far harder to play the same money games inside Korea. So the funds were now dispersed through paper companies in tax havens.
Of that amount, only around 500 billion won in cash could be moved immediately. Even if they threw everything they had at it, there was a limit to how much stock they could buy. And even if they somehow won the shareholders’ meeting that way, the problem would not end there.
If Hanjeong Group won, the stock price would collapse instantly. They would struggle to recover even half the money they had invested. In other words, they would be taking a loss of several hundred billion won on the spot. And even so, that was still better than losing the shareholders’ meeting.
“Don’t worry. There is one way.”
At that, Ju Cheol-jin’s eyes flew wide open. “Really?”
If it was that method, then they would have an unconditional victory without even having to go to the shareholders’ meeting. But the side effects were enormous.
Because it would hurt the company, the stock would plunge and they would face harsh criticism from both shareholders and the public.
But in their current situation, they had no choice.
Chairman Ju gave a bitter smile. To win, I’ll have to swallow poison if I must.
The search and seizure fizzled out without producing anything.
Hanjeong Mulsan, which had been surging, was now slipping slightly. That meant both sides were holding back on buying for the moment.
Senior Dong-ho tilted his head. “Weird. By now they should’ve been scraping together even the slush fund to buy shares.”
I felt the same doubt.
Even if the three-party alliance failed, all they would lose was money. The chairman’s family, on the other hand, stood to lose everything they had.
This wasn’t just about losing control.
From the way Kim Sung-gwun had acted so far, they would also rip through every bit of corruption that had accumulated over the years. One wrong move and they would be headed to prison for embezzlement and breach of trust.
For the chairman’s family, their lives were on the line.
Right now, they should have been desperate enough to cling to even a 0.1 percent advantage. So why weren’t they buying more shares? Were they just watching for the moment?
I was still thinking that when a call came in from Continue Capital HQ.
"We heard the news. I figured as much, but I didn’t expect the FSS to move for real."
That was what it meant to take on a chaebol in Korea. It was dangerous in ways outsiders would never fully appreciate.
“Still, things should stay quiet for a while.”
But David had a slightly different view.
“What about another move?”
“Another move?”
“You know the easy way to slash existing shareholders’ stakes all at once, don’t you? We used that method ourselves.”
“You mean...”
At that moment, one possibility flashed through my mind.
“A rights issue?”
“Yes. More precisely, a Third-Party Allocation Capital Increase.”
Let’s say a company had 100 shares outstanding.
Manager A held 40, and B bought up 60. Under those circumstances, A would lose control to B at the shareholders’ meeting.
Then, suddenly, the company issued 50 new shares in a capital increase, and C bought all of them.
Now the total share count rose to 150, with A holding 40, B holding 60, and C holding 50. If A and C joined forces, they could defend control at 90 to 60.
With a normal rights issue, B could also participate and increase his stake proportionally. But with a third-party allocation, outsiders were excluded from participating in the first place.
But...
“That’s impossible.”
A Third-Party Allocation Capital Increase wasn’t allowed during a control fight.
If it were, hostile M&A would be impossible in practice. Whenever one side fell behind in ownership, they could simply keep issuing shares to a chosen third party without limit.
It was basically an M&A cheat code.
“The law prohibits it, yes. If it were just between private companies, there’d definitely be a problem. But what if that ‘third party’ were the government?”
“The government?”
“The idea is to merge Hanjeong Mulsan with a company currently controlled by the Korea Development Bank.”
“What do you mean?”
David explained the method he had in mind.
First, Hanjeong Mulsan would carry out a third-party allocation capital increase, and the Korea Development Bank would buy those shares. Then Hanjeong Mulsan would use the money it received from the KDB to acquire the stake in the company the KDB controlled, and merge the two.
That way, instead of holding the shares it originally had, the KDB would end up holding Hanjeong Mulsan stock. And then it would use those shares to side with Ju Cheol-jin at the shareholders’ meeting.
The moment I heard that, it felt as if I had been struck in the head with a hammer.
...
Why hadn’t I thought of that?
“That may be an unnecessary concern on my part. I was only bringing it up just in case.”
“No, not at all. That was an excellent point.”
In the first timeline, the merger had simply gone through and that was the end of it.
A merger getting rejected and turning into a control battle was something I was seeing for the first time too.
Hanjeong Group was now on the verge of losing the entire conglomerate, and starting with the president, the government officials were all sitting on a mountain of bribes.
When someone has swallowed salt, they’re going to reach for water. Once they’ve taken the money, they will absolutely try something.
I had almost let my guard down.
This was exactly why you had to listen to the experts.
“If they do merge it, which company would they merge with?”
As if he had been waiting for that question, David said, “I looked into it just in case...”