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| A Hankook Tire & Technology plant in South Chungcheong Province / Courtesy of Hankook Tire & Technology |
By Nam Hyun-woo
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| Hakook Tire & Technology CEO Cho Hyun-bum |
The analysts said Korea's largest tiremaker was in need of new strategies to improve its declining profitability, but Cho's potential detention and further punishments could pose a threat to the company, which is already taking on foreign rivals in the weakening global automobile market.
The Seoul Central District Prosecutors' Office sought a detention warrant for Cho on charges including dereliction of duty and embezzlement. The Seoul Central District Court is expected to decide whether to issue the warrant as early as Thursday.
The National Tax Service probed the tiremaker in July last year over alleged tax dodging and handed over its findings to the prosecution in January. The prosecution reportedly secured evidence that Cho created a slush fund and took hundreds of millions of won unfairly from suppliers.
The investigation is expected to deal an additional blow to Hankook Tire & Technology, as it comes amid the company's slowing sales.
From January to September this year, the tiremaker's aggregated sales stood at 5.22 trillion won ($4.46 billion), up 2.96 percent from a year earlier, but operating profit plunged by 23.5 percent to 426.7 billion won from 557.6 billion won during the same period. The operating profit also declined by 3.9 percent in the third quarter alone.
Analysts said the third-quarter number was fortunate for the company, because the lower won value helped it offset a decline in the number of tires sold.
"Though the third quarter earnings were better than expected, there are not many factors contributing to the company's rebound in the fourth quarter," KB Securities analyst Kang Seong-jin said. "While tire sales are declining, the Korean won has been strengthening recently, becoming an extra burden for the company."
The investigation also dealt a blow to the company's recent share price recovery. After plunging to 26,800 won on Aug. 16, the company's shares have been on a slight uptrend based on a belief that it had already hit bottom, but plunged by 3.75 percent to 34,650 won on Tuesday, after the prosecution confirmed the investigation. It ended at 34,900 won on Wednesday, up 0.72 percent from the previous session.
"The company's global sales network has been pinpointed as the company's major weakness," Kang said. "With the global automobile market outlook remaining pessimistic, the company's turnaround hinges on how it can improve its sales network."
This is not the first time that Cho has been investigated by the prosecution. In 2008, he was grilled over an allegation that he raked in profits unfairly by using classified information of a Kosdaq company, but was acquitted a year later.
Cho, the second son of former Hankook Tire & Technology Chairman Cho Yang-rai, became the CEO of the tire maker last year. He is also known for his marriage to the third daughter of former President Lee Myung-bak.
