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Economy

Korea Aerospace ex-chief indicted for fraud, embezzlement

Stock of South Korean defense company halted, nine others charged

SEOUL - The former chief executive of Korea Aerospace Industries has been indicted for accounting fraud, bribery and embezzlement at the state-owned defense company, the prosecution said Wednesday.

The Seoul Central District Prosecutors' Office alleged that Ha Sung-yong, 65, had inflated sales of KAI by 535.8 billion won ($472.1 million) and its net profit by 46.5 billion won between 2013 and the first quarter of this year. Ha resigned in July as the prosecution widened its investigation into him, raiding his office and car. He was arrested in September and will now face trial for the charges.

The prosecution also indicted nine former and current executives of the company for embezzlement and fraud. They are suspected of having siphoned off 7.3 billion won in bonuses and having embezzled 1 billion won by fabricating the exchange rates of foreign currencies held by the company.

The announcement came hours after the Korea Exchange suspended trade of KAI's shares, futures and options, demanding the company explain its position. KAI has not released any statement on the case.

KAI shares jumped 9.15% to 47,700 won on Tuesday, one day before the suspension, on news that the government had named Konkuk University professor Kim Jo-won as the company's new CEO. The benchmark KOSPI rose 1.64% on the day.

Kim, a former secretary general of the state audit agency, will assume the helm of the company later this month after getting the green light from shareholders. State-run Export-Import Bank of Korea is the largest shareholder of KAI with a 26.41% stake.

Kim is a close aide of President Moon Jae-in, having campaigned for him in the election. They had worked together under former President Roh Moo-hyun in 2005.

Analysts expect that Kim will be able to stabilize the company, resume production of its military helicopters and win orders for other products. "I think the new CEO will normalize the company, ending negative sentiments against it," said Choi Jae-hyung, an analyst at Nomura. "Suspended orders will be resumed as well as supply of Surion will be normalized."

Surion, a military helicopter, was developed by KAI but its use was halted in July after it failed an airworthiness test conducted by the state audit agency. Nonetheless, KAI plans to bid to produce trainer jets for the U.S. air force in a project worth 17 trillion won later this year.

Choi was optimistic about the company's prospects, saying that the defense industry will benefit from the Moon government's plan to increase investments in the sector amid rising military tensions with North Korea. The government's defense budget for next year has increased 6.9% to 43.1 trillion won from this year. He said demand for military products was rising globally too and KAI could benefit from that.

Lee Sang-hyun, an analyst at IBK Securities, said that it is too early to say if company officials had committed accounting fraud. KAI's auditor, Samil PwC, had cleared the accounts and did not find anything untoward in the company's financial documents.

"The accounting firm which audited KAI confirmed that the company's financial documents had no problem. Considering KAI did not post big losses, it is unlikely that the company is delisted from the stock market."

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