GL Entech (8)
Senior Dong-ho and Kim Beom-seok looked at the surging GL Entech share price with identical expressions of utter disbelief.
They could never have imagined that a company with an 80 trillion won market cap would climb this high.
When I thought about it, I really was doing something monstrous.
South Korea was the world’s tenth-largest economy.
And I was freely manipulating the stock market of a country like this. Who in the world could even do something like that?
Even I sometimes found it hard to believe what I was doing.
Senior Dong-ho clicked his tongue.
“Are we going to end up arrested for market manipulation at this rate?”
“Come on. This isn’t some dictatorship.”
If it had been a Korean private equity fund, they might already have been raided, dragged into a prosecutors’ investigation, and driven out of business. But Continue Capital was an American private equity firm.
Even if they tried to arrest us, it would be pointless so long as our headquarters were in the United States.
“So what, was Japan a dictatorship too when they arrested Chairman Samara?”
“……”
Well, that was Japan. It was Japan, after all...
I said it casually, but I was just as tense.
This had never happened in my first life, so I had no idea what would come next, and that left me on edge.
Lately, I hadn’t been sleeping properly either. I’d doze off for an hour or two, then wake up, over and over again. There was a reason people said stocks stole your lifespan.
That was why people were supposed to stay far away from stock investing and just throw everything they had into real estate.
Kim Beom-seok chimed in too.
“A friend of mine works at a hedge fund. He shorted GL Entech stock and took a massive loss. He says the company looks like it’s going to go under before long.”
I answered with mock sympathy.
“That’s rough. It’s exactly why you have to be careful with short selling.”
There had been a reason brokerages had long restricted short selling for retail investors.
If you bought a 10,000-won stock, the maximum loss was capped at 10,000 won.
But if you shorted that same 10,000-won stock and the price rose to 100,000 won, your loss would be 90,000 won.
If it went to 1 million won, the loss would be 990,000 won. That was a 9,900 percent loss relative to the initial investment.
In theory, the losses from short selling were unlimited. That was why it had only ever been allowed for institutions that were supposed to be able to bear that risk.
But when something like this happened, even institutions were helpless.
Hedge funds that had shorted GL Entech were, for all practical purposes, bankrupt.
Another problem was the securities firms that had lent out the shares.
In practice, most of them had lent out more shares than they actually held, meaning they were effectively engaged in naked short selling.
When that was pointed out, the brokerages protested that they held shares subject to lock-up, so it wasn’t naked short selling at all.
In response, furious retail investors started pulling their shares back.
If the short sellers were the borrowers, the securities firms were the banks, and retail investors were the depositors.
When the borrowers went bust, it was the banks that would end up swallowing the debt, so the banks extended repayment deadlines and took no collateral, barely managing to stave off collapse.
And then the depositors started a bank run by moving their shares elsewhere.
The moment the banks could no longer deliver what people had entrusted to them, they would have to shut their doors too.
Some brokerages were buying shares at any price just so they’d have enough to return them to retail investors.
Senior Dong-ho asked me,
“How long are you planning to keep this up?”
“Who knows.”
If I were being honest, I wanted to do it forever.
Opportunities to push the market up and drag it back down however I pleased didn’t come along every day.
But a stock price rising forever was impossible.
When the time came, I’d have to sell and get out.
I met with Sung Yoon-ah.
She said proudly, “Our account openings have increased like crazy.”
“How much are we talking?”
“150,000 accounts. Our first target is 300,000.”
The reason was partly that we had already made it easy to open accounts on smartphones before announcing the computerization of short selling, and to move shares with just a few clicks.
Like they say, when the tide comes in, you should row hard. We’d also been aggressive with sign-up events and other promotions, actively trying to attract customers.
DA Securities was strong in IB work targeted at companies, but weak in retail finance.
So it had spent years expanding branches and pushing hard to bring in individual customers... only to get briefly bogged down by the Primus scandal.
But this time, by taking the lead on short-selling computerization, it had hit the jackpot.
Listening to her, I could tell just how furious retail investors were about short selling.
“I really am glad I listened to you, Miru. My mom says to thank you too.”
“If you’re grateful, then dinner tonight is on you, Yoon-ah.”
At that, she looked utterly stunned.
“You made all that money and you still want me to pay?”
“Is that my money?”
“Then whose money is it?”
“It’s all company money.”
She laughed in disbelief.
“Honestly. The rich really do get richer, don’t they? Fine. I’ll pay.”
I followed her to the restaurant she had already reserved.
The spacious dining room was packed with people.
“Looks like this place is pretty famous.”
Sung Yoon-ah nodded.
“It is. This is Rock’s Restaurant, run by David Gardner, a famous Australian chef. They opened their first branch in Korea this time, so the reservation was incredibly hard to get. I heard they’re booked solid for three months.”
“Really?”
I’d never even heard of it.
It wasn’t as if I went to Australia very often.
Thanks to her having booked well in advance, we were able to sit down.
When the dishes we ordered arrived, we lightly clinked our wine glasses together.
“It looks like Assemblyman Namgoong Seok’s bill is going to pass.”
“It should have been done a long time ago.”
When he first introduced the bill, Namgoong Seok had drawn almost no attention at all. But once the GL Chemical collapse and the GL Entech surge broke out, the atmosphere changed.
Now, if you turned on the news, it was GL Entech and the stock market all day long.
As word spread that this kind of chaos could have been avoided if Namgoong Seok’s bill had already been passed, momentum for the legislation only grew stronger.
Who would dare oppose it now, when doing so might end their political career?
“If this passes, the chaebols are going to explode.”
“They will.”
Especially the groups that were preparing for succession and inheritance would have to rethink their plans from scratch.
Right from the start, the very idea of a father chopping up affiliates and handing one to each child was absurd. If that was the plan, they should have never gone public in the first place and just run the whole thing as a family company.
“Come to think of it, Assemblyman Namgoong Seok has become incredibly famous. If you think about it, isn’t that all thanks to you, Miru?”
Only Chairman Yoo Jae-ho knew that I wanted to make Namgoong Seok president.
I played dumb.
“You think so?”
Even without this incident, President Oh Young-hwan’s approval rating had already been in the basement, and a change in administration was practically a foregone conclusion.
Even before the presidential race had properly begun, the phrase “it’s Im Chang-sik anyway” had already caught on, which showed how firmly the Im Chang-sik theory had taken hold.
And then, this time, Representative Im Chang-sik had gone and made a mess of things by pushing self-regulation, drawing concentrated attacks from the ruling party and even alienating his own supporters.
Meanwhile, Namgoong Seok’s profile soared.
It made sense. He was the only one who had stepped forward and fought when every other politician looked away.
In spite of endless resistance and hardship, he had kept pushing the bill forward without flinching, and the public applauded him for it.
In the end, the GL Chemical collapse and the GL Entech surge had happened back to back, proving that Namgoong Seok was right and Representative Im Chang-sik was wrong.
He had not even been considered a presidential hopeful before, but now he had suddenly emerged as one of the strongest contenders in the party primary.
“Maybe he’s grateful to you deep down?”
“No way.”
I took a sip of wine and thought of the phone call I’d had with Namgoong Seok.
He was probably cursing me out to his heart’s content by now.
When Assemblyman Namgoong Seok first said he would introduce a bill regulating physical spin-offs and affiliate listings, no one paid it any attention, and no one thought it would pass.
He couldn’t even get it introduced because there were no lawmakers willing to back it.
But now the situation was different.
Lawmakers from both sides, eager to win public favor, rushed to have their names added as co-sponsors.
In the end, the bill was put on the agenda.
It granted appraisal rights to dissenting shareholders in the event of a physical spin-off, required the consent of more than two-thirds of minority shareholders at the general meeting before a post-spin-off listing, granted appraisal rights to dissenting shareholders for affiliate listings, and provided stock dividends in kind to existing shareholders, among other measures.
A law that protected the interests of minority shareholders was, from the perspective of the chaebols who had been feeding on those interests, a law that forced them to take a loss.
Until now, the secret to corporate success in Korea had been simple.
You invested in new businesses with shareholders’ money, pushed the losses onto the shareholders if things failed, and if they succeeded, you took the profits for the owner’s side.
Like an organism reproducing through endless cell division, companies had been split again and again, with subsidiaries listed one after another to keep inflating their size.
But if this bill passed, they would no longer be able to siphon off the profits earned by the company, which meant those profits would belong only to the company and its shareholders.
If this had happened before, the business community and the media would have rushed out to argue that it stifled corporate activity, discriminated against Korean firms compared with foreign ones, would drive companies overseas, and that without investment and hiring the country itself would collapse.
But now the entire market was being scorched to the ground by GL Entech.
Through this fiasco, the entire nation had learned how much damage physical spin-offs and subsidiary listings could inflict on shareholders.
Large corporations that had been preparing physical spin-offs and affiliate listings quietly deleted their notices and news articles.
In the current atmosphere, one careless word could ruin you. So no one dared voice opposition.
The media outlets that had long acted as the chaebols’ loudspeakers also stayed silent.
Assemblyman Namgoong Seok, looking completely drained, said in the National Assembly,
“It’s already too late, but I ask that this bill be passed so that minority shareholders never again suffer at the hands of controlling shareholders and management.”
Namgoong Seok’s physical spin-off and subsidiary listing regulation bill was passed with overwhelming support from lawmakers on both sides of the aisle.
The news sent shockwaves through the stock market and the business world.
Tapioca Group had planned to list Tapioca Games, a subsidiary of Tapioca, and then list Camel Studio, a subsidiary of Tapioca Games.
It also intended to list Tapioca Entertainment, Tapioca Driving, and Tapioca Life one after another, and then list the subsidiaries under those companies as well.
There were more than ten subsidiaries and grand-subsidiaries scheduled for listing this way.
But once all those plans were canceled, the share price of the holding company, Tapioca, jumped 25 percent. It was the biggest gain since the company’s IPO.
GJ Group had planned to list GJ Coconut, in which the owner family held a 65 percent stake, in order to raise funds for succession.
It had also planned to use the general meeting of GJ M&E to physically spin off the drama production company Tiger Studio and bring in fresh investment.
When those plans were scrapped, the share prices of GJ and GJ M&E rose 8 percent and 13 percent, respectively.
The Wondong Group had planned to merge its listed company, Wondong Industrial, with the unlisted Wondong Holdings.
Once it became known that the merger ratio had been set low for Wondong Industrial, whose minority shareholder base was large, and high for Wondong Holdings, 71 percent of which was owned by the founding family, Wondong Industrial’s share price fell 23 percent after the merger announcement.
Despite opposition from minority shareholders, Wondong Group had pushed ahead, insisting that it had fairly assessed the corporate value, but once the law passed it announced that it would readjust the merger ratio.
Wondong Industrial’s share price shot up to the daily limit-up.
LK Group had been planning to list five subsidiaries this year alone, but when those plans were canceled, LK and LK Chemical rose 12 percent and 9 percent, respectively.
Daeyeon Truck’s share price rose 6 percent after canceling the listing of Daeyeon Winner, and Daechung Heavy Industries rose 9 percent after canceling the listing of Daeyeon Oil.