March 29, 2024

South Korean Executive’s Arrest Seen as Move to Tame Conglomerates

SEOUL — The head of CJ Group, a major conglomerate in South Korea, was arrested on charges of embezzlement and tax evasion as the country’s parliament enacted a series of laws on Tuesday that were aimed at protecting smaller businesses from large corporations like his, which have dominated the economy for decades.

Lee Jay-hyun, the CJ Group chairman, who was locked up shortly before midnight Monday, was accused of stashing hundreds of millions of dollars under others’ names, dodging 70 billion won, or $61 million, in taxes and misappropriating 100 billion won in company money.

Mr. Lee, 53, a grandson of Lee Byung-chull, the founder of the Samsung empire, was the first tycoon to be arrested on corruption charges since President Park Geun-hye took office in February amid mounting public calls for “economic democratization.” In her inaugural speech, Ms. Park took note of public sentiment, vowing to deal sternly with tycoons involved in white-collar crimes and the conglomerates’ expansion at the cost of smaller businesses.

Although all the rival parties agreed during the presidential campaign last December to enact several bills that would act as checks on the conglomerates’ power, the writing of the legislation has proven contentious.

South Korea’s economic growth has depended heavily on exports and expansion led by a small group of family-owned conglomerates like CJ, Hyundai and Samsung. The conglomerates, known as chaebol, have vigorously lobbied the National Assembly in recent months, insisting that overly strict restrictions would hurt their competitiveness and profitability and damage the South Korean economy in general, an argument supported by many lawmakers affiliated with Ms. Park’s conservative governing party.

Ms. Park recently said any overhaul bills should not hurt the chaebols’ potential for leading economic growth as the economy slowed, and the political opposition accused her of retreating from her campaign promises.

After months of bickering, the competing parties agreed on several pieces of legislation Tuesday.

Under one new law, subsidiaries of a chaebol partly owned by its chairman’s family would have a harder time monopolizing supply orders from the rest of the business empire. Amid widespread discontent over the widening gap between rich and poor, South Koreans have fumed at the way the tycoons helped their children inherit easy fortunes: Companies sold shares to the chairmen’s children at unrealistically low prices or showered lucrative business orders on affiliates owned by the chairmen or their families without conducting competitive bidding.

But even before that bill was put to a vote, critics said political bargaining had turned it into a “paper tiger” with too many loopholes and exceptions.

“This is cheating the people in the name of economic democratization,” Solidarity for Economic Reform, a civic watchdog on chaebol, said in a news release.

Another law passed Tuesday protects the rights of small-business owners who operate convenience stores under a franchise agreement with chaebols. A third reduced the maximum percentage of a bank a chaebol is allowed to own to 4 percent, from 9 percent .

By trying to curb the power of chaebols, Ms. Park is struggling with her father’s legacy.

Her father, the longtime strongman Park Chung-hee, who ruled South Korea from 1961 to 1979, nurtured a handful of family-controlled businesses with easy credit, subsidies, tax benefits and protection from foreign competitors. Those companies, including Samsung and Hyundai, have grown into globally recognized conglomerates that have been widely credited with leading South Korea’s economic growth, exporting goods as diverse as computer chips, cellphones, cars and ships.

But at home, the sprawling corporate empires are also seen as predators, as their dominance in increasingly diverse swaths of the economy has come at the expense of smaller businesses. For example, they run rapidly expanding nationwide chains of hypermarkets, supermarkets and 24-hour convenience stores that have squeezed out traditional markets and mom-and-pop stores.

Article source: http://www.nytimes.com/2013/07/03/business/global/south-korean-executives-arrest-seen-as-move-to-tame-conglomerates.html?partner=rss&emc=rss

Alabama County’s Debt Deal Averts Bankruptcy

The terms of the agreement call for Jefferson County, which includes the city of Birmingham, to shed about $1 billion of the debt, the majority of which is held by JPMorgan Chase. The agreement also offers the county several tools to lower the interest rate on roughly $2 billion of new, 40-year debt that will be issued to replace the current warrants.

“It’s been an agonizing process; it’s been going on for three and a half years,” said one Jefferson County commissioner, Joe Knight, explaining why he voted for the agreement. “Today we’re going to take a step. It’s time for a resolution of this lingering debacle.”

Even with the Jefferson County Commission’s 4-to-1 vote in favor of the agreement, a number of significant steps must still be taken by the state Legislature and other parties before the restructuring can close by the deadline of June 30, 2012. The county’s other creditors — including Bank of America, Bank of New York Mellon, Regions Bank, Assured Guaranty and Financial Guaranty Insurance — have agreed to use the new agreement as a framework for completing a definitive settlement with the county.

Jefferson County’s outsize debt grew out of a flawed attempt to refinance bonds that it sold in the 1990s to raise money for court-ordered improvements to its sewer system. The refinancing was supposed to save money, but it set off a wave of influence-peddling and other illegal activity that led officials to sign up for complex derivatives contracts fraught with hidden risks. The contracts broke down when the markets froze in 2008, leaving the county with more debt than it could pay. Several officials have since been convicted on corruption charges.

The county defaulted on the debt in 2008 and has since been in acrimonious and mostly unproductive talks with creditors about what to do next. The creditors have called on the county to raise sewer rates, but many residents have said they should not have to pay more because contracts were signed amid so much lawbreaking.

The new agreement calls for yearly rate increases, but smaller ones than creditors proposed in the past. It also calls for outside consultants to vet the sewer system’s expenditures and costs, for a low-income assistance fund to be created at creditor expense, and for the county to catch up on its audited financial statements, which have been late ever since 2008.

Mr. Knight and others on the five-member commission said they decided to approve the deal because it would involve the state’s help for the first time. Gov. Robert Bentley is to call a special session of the state Legislature this fall, where lawmakers will be asked to work on several forms of assistance.

First, the legislators are to create an independent public corporation to take the troubled sewer system off Jefferson County’s hands. Because Jefferson County is now in default on the existing sewer debt, it cannot issue new debt, which is an essential part of the planned restructuring. The new corporation would be able to issue the debt separately from the county, with a clean balance sheet.

The legislators will also be asked to draft a “moral obligation covenant” for the corporation, meaning state money could be appropriated, upon approval, if the corporation fell behind on its debt payments. Although this covenant would not be as secure as a state guarantee, it would add a layer of credibility to help reduce the new corporation’s borrowing costs.

In addition, state lawmakers are expected to look for ways to help Jefferson County close a $40 million budget gap that became apparent over the summer.

Until this year, state officials refused to help the county straighten out its finances, saying it had made its own problems and should solve them on its own. That led to a hardening of public opinion in the county, with more and more people calling for the commission to declare bankruptcy.

County Commissioner Sandra Little Brown said that since the state had finally offered some help, “it would really be a slap in the face to the governor and the Legislature” to turn it down. She pointed out that the framework agreement still gives the county a chance to file for Chapter 9 bankruptcy court protection if the state’s efforts prove fruitless.

The one commissioner to vote against the agreement, George F. Bowman, said he did so mainly because it included rate increases.

In the meeting on Friday, he read part of a letter the commissioners had received from a county resident who urged them “not to accept the extraordinarily damaging terms,” particularly annual rate increases that could go on for as long as 40 years.

Article source: http://feeds.nytimes.com/click.phdo?i=364c552d8ffbf4743bacb5b4d789609a