Chung stays out of jail, but at a price

Hyundai Motor Co Chairman Chung Mong-koo (left), convicted of embezzlement in February, won a suspension of his prison sentence, contingent upon his promise to donate 1 trillion won ($1 billion) to charity.

The Seoul High Court quashed Chung's prison term, even as it upheld Chung's convictions on charges of embezzlement and breach of duty, presiding judge Lee Jae-hong said yesterday.

The suspension gives South Korea's second-richest man and the head of the world's sixth-biggest carmaker, more time to concentrate on winning customers from Toyota Motor Corp and Honda Motor Co. Hyundai Motor earlier this week cut its 2007 sales target in China and the United States, citing tougher competition and slowing demand.

Relief

"The ruling is a relief for Hyundai, as Chung can now focus on the business," said Yoo Jung-sang, who oversees about $8.4 billion at PCA Investment Trust Management Co in Seoul. "It's a critical stage for Hyundai in its bid to become a global top-tier automaker."

Hyundai Motor shares, which have gained 6.5 percent this year, rose 0.6 percent to 71,800 won at the close of trading in Seoul.

Both Chung and the prosecutors can appeal to the country's Supreme Court, which will only rule on Chung's guilt or innocence.

Chung promised to donate 1 trillion won to charity, including building a concert hall and opera house in Seoul and 12 cultural centers in other provinces over the next seven years.

Chung's legal woes since his arrest in April last year forced Hyundai Motor and its affiliate Kia Motors Corp to slow the construction of overseas plants and delay new models. The disruption also helped prolong the second-costliest strike in Hyundai Motor's history.

Target cut

Hyundai Motor earlier this week cut its sales target in the US by 8.1 percent as falling house prices and rising foreclosures on subprime mortgages hurt demand for cars.

"Chung needs to raise vehicle quality and the company's marketing," said Suh Sung-moon, an analyst at Korea Investment & Securities Co in Seoul.

Chung and three other Hyundai Motor executives were accused of setting aside 103.4 billion won without proper accounting and of using 69.6 billion won for illegal political donations, undeclared employee bonuses and to attract an international expo to the city of Yeosu.

During his original trial, Chung testified that he knew funds were being diverted without proper accounting and he felt "overall responsibility for the creation and the use of the fund".

Chung was also charged with causing damage to Hyundai and its affiliates by selling shares of affiliates at lower-than-market prices to himself and his son Chung Eui-sun.

Bloomberg News

(China Daily 09/07/2007 page16)