[Exclusive] FTC: “There has been no government-wide discussion of privatizing KAI” ... National Assembly audit could prove pivotal for Hanwha’s acquisition

[Financial News] The Korea Fair Trade Commission (KFTC) drew a line, saying the government had not discussed privatizing Korea Aerospace Industries (KAI). It also stressed that it had not analyzed the impact on competition. Given that KAI’s privatization came under scrutiny after Hanwha’s increased stake led to a simplified merger review, the statement reads as closing the door on that possibility.
On the 6th, responding to written questions about KAI’s privatization from Han Min-su, a Democratic Party of Korea member of the National Assembly’s Political Affairs Committee, the KFTC said, “There has been no discussion at the cross-ministerial level,” adding, “If Hanwha later acquires additional shares in KAI and becomes its largest shareholder, has at least one-third of its executives, or concurrently holds the CEO position, among other cases, a merger review will be conducted again.”
The KFTC had earlier approved an increase in Hanwha’s stake in KAI to 15.89%. It conducted only a simplified merger review, judging that the stake was not enough to exert substantial influence over the company’s management. However, industry observers expect Hanwha to join KAI’s board, given that it has become the company’s second-largest shareholder. That is why speculation about KAI’s privatization has emerged.
Even so, the government had not put KAI’s privatization on the agenda. The KFTC’s view is that even though Hanwha is the second-largest shareholder, it is not in a position to secure management control, as government-affiliated holdings—including the Export-Import Bank of Korea’s 26.41% and the National Pension Service’s 8.75%—total 35.16%. Accordingly, the KFTC maintains that passing the simplified review amounted only to confirming the facts. It said it had not even analyzed the impact on competition.
The KFTC told the lawmaker, “At this point, Hanwha has not secured ‘control’ sufficient to exert substantial influence over KAI’s overall management with its 15.89% stake alone,” adding, “The simplified review examined only whether the information in the filing was factual; a comprehensive analysis of the impact on competition has not been conducted.”
In light of the government’s principled stance, industry and political circles expect the National Assembly’s annual audit to be a turning point in determining the fate of Hanwha’s acquisition of KAI. The expectation is that the issue could be resolved as FTC Chairman Joo Byung-ki, Hanwha representatives and KAI President Kim Jong-chul debate with ruling and opposition lawmakers at the audit.
Chairman Joo is set to appear as an institutional witness at the Political Affairs Committee’s audit, and has also been requested as a witness by the National Defense Committee in connection with Hanwha’s acquisition of KAI. The National Defense Committee has also included Kim Dong-kwan, Hanwha Group’s senior vice chairman, and KAI President Kim Jong-chul on its list of requested witnesses for the same matter. The Finance and Economy Committee selected Kim Jong-chul as a witness on the issue of KAI’s privatization.
[email protected] Kim Yun-ho Reporter