Moral Hazard Case Study: Hanjin Shipping
Moral hazard issue flares up again amid corporate restructuring
With Korea on the verge of a massive corporate restructuring, controversy has resurfaced over entrepreneurial moral hazards following the sale of shares in a financially troubled shipper by the family of its former chairwoman, watchers said Wednesday.
According to a recent regulatory filing, Choi Eun-yeong, former chairwoman of Hanjin Shipping, and her two daughters sold their entire 0.39 percent stake, or 669,248 shares, in Korea's biggest container carrier between April 6-20.
The controversial stock sale was completed two days before Hanjin Shipping, long troubled by an industry slump and ballooning losses, decided to apply for a creditor-led debt revamp and a self-rescue program.
Shares of Hanjin Shipping tumbled 7.3 percent to finish at 2,605 won ($2.28) on the main bourse on Friday. The decision was announced after the market closed.
As Hanjin Shipping submitted the application to creditors on Monday, the shipper suffered another rout with its share price plunging by the daily permissible limit of 29.94 percent to 1,825 won.
Choi's family is estimated to have avoided some 1 billion won in losses by selling their shares ahead of the company's decision to file for debt restructuring.
The nation's financial watchdog has opened an investigation into whether the Choi family sold the shares using undisclosed corporate information to avoid hefty losses.
Market watchers slam the stock sale as a typical case of entrepreneurial moral hazard, regardless of whether it violated a related law or not.
Korea has seen several cases of moral hazard committed by the owner families of embattled companies.