After finishing work, I headed to Hannam-dong with Ellie and Yuri. We had a dinner appointnt with Chairman Ryu Cheol-gyun and Vice Chairman Shin Byeong-doo.
Ellie spoke with anticipation.
“Thanks to Yuri, we’re getting such a wonderful opportunity. Both of them are quite hard to et.”
Yuri shook her head.
“It’s more like Dad and Uncle Ryu getting to et you, CEO, and Ellie. They kept pestering to arrange a eting.”
While not widely known due to the nature of private equity, Chairman Ryu Cheol-gyun is a legendary figure in the Korean investnt world.
Perhaps if Taekgyu and I weren’t around, wouldn’t he have gone down as the most famous Korean investor?
However, the "Korean" part is actually a bit nuanced. This is because Chairman Ryu obtained US citizenship while studying abroad (which also ant he didn't serve in the Korean military, naturally). Although he was born in Korea, married a Korean woman, and lives in Korea, strictly speaking, he is a Korean-Arican.
RCK Bros is similar in this regard. Although it bills itself as a ho-grown Korean private equity fund, with its headquarters in Korea and significant investnts in the country, the vast majority of its investnt capital is actually foreign.
Well, determining the nationality of capital is a difficult and rather aningless exercise. Take Seosung Electronics, for example – half of its shares are held by foreigners.
We arrived by car at a small restaurant with only a few tables. The two n, who had arrived before us, greeted us warmly.
Ellie bowed her head and said,
“Thank you for inviting us to dinner tonight.”
Chairman Ryu waved his hands dismissively.
“No, no. We’re the ones who should be thanking you for coming. I always enjoy watching your ads.”
Vice Chairman Shin Byeong-doo shook my hand and said,
“I hope Yuri is doing alright.”
“She’s more than pulling her weight, so please don’t worry.”
He looked relieved at my words.
After exchanging greetings, we took our seats. Since they had reserved the entire restaurant, we were the only custors and didn’t have to worry about being overheard or disturbed.
The nu consisted of beef stew, turkey, french fries, and wine.
Chairman Ryu smiled and said,
“When I was studying in the US, I practically lived on sandwiches for every al. I’d buy a baguette almost as tall as and a chunk of ham from Walmart, make three sandwiches in the morning, eat one right away, and pack the other two for school.”
Having studied like that, worked at Golden Gate and Khanline Group, and then founded RCK Bros, he truly is a figure of legendary, self-made success.
We ate, drank wine, and talked.
While the nu itself felt like Arican ho cooking, the wine was top-notch. Incidentally, both n are known wine connoisseurs.
Vice Chairman Shin Byeong-doo remarked as he sipped his wine,
“When I was younger, I didn’t really understand why people drank wine. But after tagging along with this friend [Chairman Ryu] and trying it a few tis, before I knew it, I was completely hooked. With other liquors, you can get a sense of the taste after just a month or two, but I’ve been drinking wine for over ten years and still feel like I barely know it. I suppose that’s why they say wine is the ultimate drink.”
Yuri pouted slightly.
“Tsk, the problem is you drink it all the ti. If I tell you to cut back, you claim wine is good for preventing heart disease. That’s only if you drink in moderation, you know.”
The conversation naturally shifted to investnts.
Chairman Ryu shook his head in amazent and said,
“Seeing your recent investnt in TWR, partnering with Rosatom, I slapped my knee. I kicked myself for not thinking of it sooner.”
“Well, we still don’t know if it will succeed,” I replied.
“You say that, but surely you invested because you saw a high probability of success? Even if it were to fail, I’d argue it was already a successful investnt, having gained President Vysotsky's favor and paving the way for CarOS and FaceIt to enter the Russian market. I have absolutely no idea where you’ll invest next. Do you happen to have any potential targets lined up?”
“Well…”
Truthfully, I didn’t know either.
Typically, investors develop an interest in a specific industry or company, analyze it thoroughly, and then invest when an opportunity arises.
However, I tend to invest whenever I get a ‘premonition’ or foresight. Consequently, my investnt targets lack consistency, and my decisions probably appear impulsive.
RCK Bros, on the other hand, adheres to the classic private equity approach: thorough company and market analysis, planning everything right through to the exit strategy.
Yuri chid in chidingly,
“You think the CEO would tell you that, Uncle Ryu?”
Chairman Ryu scratched his head.
“Oops. I was hoping the wine might loosen your tongue and get so information out, but I guess I failed.”
We all burst into laughter.
Looking at the two n, I wondered: Will Taekgyu and I be like them in about 20 years?
Before we knew it, we had finished two bottles of wine and opened a third. Unlike Vice Chairman Shin Byeong-doo, who remained perfectly composed, Chairman Ryu’s face had beco slightly flushed.
“I’ve felt this for a while, but the pace of industrial change has been accelerating rapidly recently. Within a few years, I expect major shifts even in the stagnant waters of the Korean chaebol world.”
Vice Chairman Shin continued,
“Speaking of which, GH Group’s situation hasn’t been looking good lately.”
“GH Group?”
Ellie explained,
“Jessica ntioned it before, rember? All the project financing related to GH Construction has already been halted, and they’ve started trying to recover so of the investnts.”
Hearing this, it did sound vaguely familiar.
GH Group is ranked about 15th among Korea's chaebols, with a group market capitalization around 30 trillion won.
While significant in Korea, from our perspective, it wasn't large enough to warrant much attention. Nor did our business areas overlap.
However, I did have a minor personal connection. It’s nothing major, but an ex-girlfriend from my university days married the grandson of the GH Group chairman. She’s married with children now and living well.
Anyway, the group's difficulties stemd from successive business failures across its various affiliates.
The affiliate accounting for the largest portion of GH Group is GH Oil, Korea’s second-largest oil refiner after SSK Innovation.
Profits in the oil refining business are tied to selling prices, aning higher oil prices lead to greater profits. However, a prolonged period of low oil prices had led to a continuous decline in earnings.
There were temporary rebounds due to events like the 'Big One' incident or damage to North Sea oil facilities, but these weren't enough to reverse the low-price trend.
Furthermore, the rise in electric vehicle sales inevitably ant decreasing profits for refiners, necessitating counterasures.
SSK Innovation invested the money earned from refining into the battery business. In contrast, GH Oil established a subsidiary, GH Green, and invested heavily in polysilicon and solar modules.
At the ti, the solar sector seed more promising than batteries. The world appeared focused on renewable energy, and solar power, along with wind power, was in the spotlight.
However, the relevant technology didn't advance as quickly as anticipated. Moreover, generation costs were high compared to other thods, aning the entire industry beca reliant on governnt subsidies.
The biggest problem, however, was the onslaught from Chinese companies. As with many other industries, China is the world's largest market for renewable energy. The Chinese central and local governnts poured subsidies into their dostic companies.
Backed by this governnt support, Chinese solar companies flooded the market with low-cost modules and panels, causing GH Green's products to lose their price competitiveness.
A similar situation occurred in the battery market, but crucially, global demand for batteries surged thanks to the expanding EV market.
Moreover, Professor Kim Ho-min's success in developing the next-generation OTK battery allowed Korean companies to maintain a technological edge over their Chinese competitors.
While SSK Innovation's stock price soared after partnering with OTK Company to produce OTK batteries, GH Oil's stock price continued its daily decline, even despite a rebound in oil prices.
In short: SSK Innovation's bet on batteries paid off handsoly, while GH Oil's investnt in solar power essentially failed.
“They’ll likely sell off the subsidiary and exit the solar business soon,” Vice Chairman Shin added. “They can't sustain the losses anymore. Apparently, fairly concrete discussions are already underway with a Chinese consortium. To prevent even greater losses, it might actually be for the best. Once the official announcent is made, GH Oil's stock price will probably rebound significantly.”
This was insider information, not easily accessible to the general public. Their deep roots and experience in finance certainly gave them fast access to information.
“GH Oil might just end up writing off its investnt,” Vice Chairman Shin continued, “but the bigger problem is GH Construction.”
Korean chaebols have a peculiar fondness for construction companies.
It's hard to find a major Korean chaebol without a construction affiliate, and those without one often seek to acquire one.
Seosung Group and SSK Group are obvious examples, and Eunsung Auto Group, which spun off from Eunsung Group, went so far as to acquire Eunsung Construction, arguably the parent entity of the original group.
So why on earth do chaebols favor construction companies so much?
It's partly due to the historical pattern of the Korean economy growing through governnt-business collusion on civil engineering projects, but the main reason is that no sector makes it easier to create slush funds. With its complex web of subcontractors, sub-subcontractors, and nurous daily laborers, it's easy to siphon off funds or manipulate accounting records for wages and expenses. Thus, it has long been a favored channel for chairn to generate off-the-books funds.
However, despite rising housing and land prices, the construction sector itself has arguably been in decline recently.
“Nevertheless, GH Construction pursued aggressive expansion, aiming to beco number one dostically. It bulked up its size by acquiring smaller regional construction firms and jumped into redevelopnt, reconstruction, and various infrastructure projects. It also benefited greatly during the Park Si-hyeong administration, as there were nurous public works projects aid at stimulating the construction sector back then.”
Any administration employs various tactics to boost the growth rate, and stimulating the construction market is the simplest.
A large-scale reconstruction or civil engineering project instantly increases employnt and makes growth rates soar. This is why politicians, whether conservative or progressive, are inevitably fixated on real estate.
“But since the change in governnt, governnt-commissioned public projects have significantly decreased.”
It wasn't necessarily because this administration deliberately curbed artificial stimulus, but rather because the previous administration had already undertaken most feasible projects, leaving little left to do.
The decrease in public projects was a blow, compounded by the fact that regional real estate markets have been stagnant for years. Recently, an apartnt complex GH Construction launched in a regional area suffered the indignity of leaving more than half unsold.
Vice Chairman Shin Byeong-doo added with a tone of disapproval,
“Completely failing to read the changing tis, they just blindly focused on getting bigger. Under the guise of expanding overseas business, they launched a large-scale public project in the Philippines, but the local Special Purpose Company (SPC) responsible for paynts went bankrupt. If the Philippine governnt doesn't step in, GH Construction’s stock trading could be suspended due to capital impairnt.”
Trying to save the construction arm by injecting funds was difficult, as the other affiliates weren't faring well either. So, what was the solution?
“GH Group will soon have to make a tough decision.”
I thought for a mont, then asked,
“Whether to sell off a crown jewel affiliate to save the construction arm, or to sell off the construction business itself?”
When a company faces insolvency and managent difficulties, selling assets becos necessary. But this presents a dilemma.
No one wants to buy an insolvent company, so if you insist on selling, it has to be at a steep discount. Therefore, conversely, sotis companies sell off a profitable, core affiliate instead.
I recalled a specific example.
“Yongjin Group sold Yongjin Keyway, didn’t they?”
Yongjin Keyway manufactured and rented water purifiers and ho appliances, pioneering the concept of ho purifier installation and filter managent. It was a pri asset, accounting for over half of Yongjin Group's net profit, boasting a strong financial structure and excellent cash flow.
The problem at the ti lay with Yongjin Construction, but there were no takers for it on the market. Therefore, Yongjin Group had no choice but to sell Yongjin Keyway.
Ellie clapped her hands.
“Ah, that’s right. That did happen.”
Chairman Ryu and Vice Chairman Shin exchanged smiles.
RCK Bros had invested 1.2 trillion won to acquire Yongjin Keyway from Yongjin Group back then. Six years later, they sold it back to Yongjin Group, netting a profit of over 1 trillion won.
From fundraising and deal sourcing to M&A and exit – it was a textbook private equity deal, executed flawlessly.
Yuri added,
“Kumho Group also ended up in a workout program after recklessly acquiring Daehoo Construction back in the day, rember?”
Vice Chairman Shin Byeong-doo nodded.
“Despite the precedents set by Yongjin and Kumho, they learned nothing. If GH sells its construction arm, its chaebol ranking would plumt below 20th. Given its current business structure, its future prospects for recovery are dim.”
Chairman Ryu took another sip of wine and stated,
“Companies that adapt to change thrive and grow larger, while those that fail to adapt are rightly forced out. Frankly, the Korean corporate landscape has had too many incompetent figures holding onto their positions for far too long.”
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