Hanbo Steel's $6B collapse was the first domino in Korea's IMF crisis

Hanbo Steel was South Korea's second-largest steelmaker and the core of the Hanbo conglomerate, which ranked 28th among Korean chaebol in 1994 and 14th a year later. The leap was funded by a massive steel plant begun in 1992, built almost entirely with high-interest bank loans. The loans were not obtained on merit: a court later found that Hanbo received illegal preferential treatment, with senior politicians and bankers pressured into approving credit that no commercial review would have justified.

On 28 January 1997, Hanbo Corp. entered receivership with an estimated $6 billion in losses. It was the first of at least ten major Korean conglomerate failures that year — Kia Motors and Daewoo followed. In February, Moody's downgraded three banks with heavy Hanbo exposure: Korea Exchange Bank, Korea First Bank, and Cho Hung Bank. International investors began pulling out. Interest rates rose. The domino effect contributed directly to the IMF's $60 billion bailout of South Korea later that year.

The political fallout was equally large. Founder Chung Tae Soo was sentenced to 15 years in prison for bribery, embezzlement and fraud. Eight other figures were jailed, including two former presidents of Korea First Bank and senior presidential aides. President Kim Young-sam's son was sentenced to three years. The scandal destroyed Kim's anti-corruption agenda and exposed the chaebol-banking-government nexus that had driven Korea's growth model for three decades.