Hyundai Saga Continues (OT)

SEOUL, South Korea ? State prosecutors Thursday requested an arrest warrant for Hyundai Motor Co. Chairman Chung Mong-koo amid a bribery and slush fund scandal that has rocked South Korea's largest automaker. Prosecution spokesman Kang Chan-woo said that the arrest warrant was requested for Chung, while his son, Kia Motor's Corp. President Chung Eui-sun would continue to be investigated without being physically detained. The elder Chung is suspected of embezzling about 100 billion won ($106 million) in company money to create the slush fund and of breach of trust for allegedly incurring about 300 billion won ($317 million) of damages against the company, Kang said. The request for the warrant is subject to approval by a court, which will question Chung before deciding, Kang said. The maximum sentence if charged and convicted would be life imprisonment, he said. "It is very shocking," said Jake Jang, a Hyundai spokesman. "Hyundai executives are all in a panic. The absence of Chairman Chung is enormous and its ramifications are beyond description." Hyundai Motor, South Korea's fifth largest corporation by market capitalization, later issued a statement saying that "all plant, R&D, marketing and administrative operations continue as Last week, Hyundai announced that the Chungs planned to donate 1 trillion won ($1.1 billion) worth of personal assets to society, and that it "apologizes" for causing worries to the public. The investigation has highlighted renewed concerns in South Korea about transparency at the country's ubiquitous family-run industrial conglomerates, or chaebol, where lax corporate governance is seen as a major problem. Prosecutors in 2003 uncovered 1.55 trillion won in accounting irregularities at an affiliate of SK Corp., South Korea's largest oil refiner. Three board members, including Chairman and CEO Chey Tae-won were convicted in the scandal, which drove the SK Group to the verge of bankruptcy. Prosecutors have been investigating the Hyundai Motor group since last month over suspicion it embezzled money from affiliates to create a slush fund and used the money, via at least two lobbyists, to seek favors from the government. The move comes days after Chung spent about 15 hours at the Supreme Prosecutors' Office in Seoul for questioning over the scandal. Chung's son spent about 18 hours there for questioning last week. Prosecutors have raided offices of Hyundai Motor and its three affiliates ? Kia, logistics unit Glovis Co. and auto-parts maker Hyundai Autonet ? and questioned key officials. Hyundai spokesman Oles Gadacz said it wasn't immediately clear if Chung had an attorney. "It's regrettable that the Hyundai incident has happened," Minister of Finance and Economy Han Duck-soo told a weekly media briefing. "As the auto industry plays a great role in the local economy I hope this doesn't hurt it much." Hyundai shares tumbled 3 percent to close at 84,400 won ($89). Kia shares rose 1.3 percent to 19,600 won ($21). The lobbyists have been arrested on charges of receiving money from Hyundai in exchange for promises to help the company win construction approvals and permits, and other business favors. It is unclear if the lobbyists bribed government officials. The Hyundai group aims to become the world's sixth-largest carmaker by

2010 and is aggressively expanding overseas production to meet the goal. But the investigation is having some effect on Hyundai's operations, company spokesman Gadacz said, citing "management's inability to focus." Hyundai has delayed a signing ceremony for its planned factory in the Czech Republic, while Kia has indefinitely put off breaking ground on its first U.S. plant in the state of Georgia. Hyundai, which was expected to release its first-quarter earnings results Thursday, has delayed the announcement, which Gadacz said may come Friday.
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