The construction family of Samhwa Group
Seoul Shilla Hotel and Walkerhill awarded
Debt increase after 2nd generation management
The once-renowned ‘construction family’ that built large domestic hotels such as Shilla Hotel and Walkerhill Hotel, collapsed overnight due to mismanagement by the second generation. Samhwa Group, which was the first to enter the Middle Eastern market among domestic construction companies, closed its 66-year history. Why did Samhwa Group fall?
Founded in 1946 under the leadership of founder Choi Jong-hwan, Samhwa Group, originally known as the first generation of the construction industry, survived tenaciously among several construction companies that failed during the foreign exchange crisis. This was because Samhwa Group steadily built its foundation through the management style of founder Choi Jong-hwan. While other companies were expanding haphazardly, Samhwa Group focused only on construction and solidified its foundation, but collapsed due to the corruption of the second generation of management and sibling conflicts.
Samhwa Group, established in 1946 under founder Choi Jong-hwan, quickly established its headquarters in Seoul’s Euljiro within two years by monopolizing construction projects from the US military in various sectors. After experiencing the Korean War, Samhwa Group expanded its business through post-war reconstruction projects and converted to a joint-stock company in September 1952.
According to the industry, founder Choi Jong-hwan participated in the establishment of Samhwa Group with his two brothers, with founder Choi holding 10,000 shares, his second brother Choi Young-hwan holding 5,000 shares, and his eldest brother Choi Myung-hwan holding 500 shares. In 1962, Samhwa Group won the construction contract for Walkerhill Hotel in Gwangjin-gu, Seoul, beating out well-known construction companies in a public bid, gaining recognition in the industry.
After winning the contract to build Walkerhill Hotel, Samhwa Group also managed famous buildings and large hotels such as Shilla Hotel, Chosun Hotel, and Samil Building, gaining a reputation as a ‘construction family’. During this time, Samhwa Group expanded its market presence by ranking 4th in domestic construction capabilities. Founder Choi Jong-hwan, who was well-known domestically, began to dream of overseas expansion.
In 1963, Samhwa Group established a branch in Vietnam and attempted overseas expansion, but withdrew after four months and then established a branch in Jakarta, Indonesia in 1968, becoming the first Korean company to establish a branch for overseas construction projects.
By 1973, Samhwa Group entered Saudi Arabia and won a highway construction project after several failed attempts. However, they faced many setbacks, including material supply shortages, and recorded losses until completion. Despite the losses, Samhwa Group did not give up and won a contract for the ‘Jeddah Mecca Highway Project’ under the condition of completing the project before the Mecca pilgrimage, working night shifts with torches and catching the eye of the then Saudi King.
Following this incident, Samhwa Group successfully expanded by winning large-scale projects worth $60 million and later achieved success by pioneering markets in countries such as Yemen, Jordan, and the US state of Alaska in the 1980s.
At this time, with nine subsidiaries, Samhwa Group entrusted the management of its subsidiaries to close relatives and focused on the construction industry. Thanks to the management style of founder Choi Jong-hwan, Samhwa Group was able to maintain a solid business foundation while other construction companies were shaken during the IMF era.
However, when founder Choi Jong-hwan handed over the group to his son, Chairman Choi Yong-kwon, on the group’s 50th anniversary, and stepped back from the management, the decline of Samhwa Group began. This was because Samhwa Group began to decline shortly after Chairman Choi Yong-kwon took over the management.
In particular, under the leadership of Chairman Choi Yong-kwon, Samhwa Group entered the apartment business but did not achieve great success. After the foreign exchange crisis, they faced illegal layoffs and unauthorized funding issues. The global financial crisis that started at the end of 2008 caused their sales, which were 1.1373 trillion won in 2010, to plummet to the 860 billion won range in 2011, with operating losses and increased debt.
In 2012, Samhwa Group entered court receivership due to the inability to repay loans of about 7 billion won. However, Samhwa Group managed to avoid bankruptcy by selling a property in Sogong-dong, Seoul to Buyoung Housing for 172.1 billion won, Chairman Choi Yong-kwon stepping down from management, offering a 12% stake, and promising capital contribution a year later, thereby ending court receivership.
During this process, internal employees revealed that Chairman Choi Yong-kwon had created a slush fund of over 100 billion won through secret accounts, leading to the unprecedented situation of Chairman being prosecuted for embezzling funds and causing 18.3 billion won in damage by unfairly supporting subsidiaries, resulting in a sentence of three years in prison with a four-year suspension.
Furthermore, with Chairman Choi Yong-kwon being sued by his younger sister, multiple crises arose, and the promised capital contribution did not materialize. As crises mounted around Chairman Choi Yong-kwon, Samhwa Group struggled with financial difficulties and was labeled a ‘distressed company.’
In October 2016, led by small shareholders, Samhwa Group once again entered court receivership, and after two years, in May 2018, it was sold to SM Group for 63 billion won to maintain its legacy. Samhwa Group, once known as a construction family in the 1970s, fell after 72 years due to the mismanagement of the second generation and legal risks.
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Source: Based on multiple sources including MBC, Building Korea, and the National Archives.