Affiliates’ ‘finance circles’ in decline

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Affiliates’ ‘finance circles’ in decline

The amount of debt guarantees among affiliates of conglomerates has declined significantly compared to last year, the Fair Trade Commission? announced yesterday.

The debt-guarantee practice, known as “financial circles,” between affiliates of large corporations, which is widely used to raise capital, has been targeted by the government.

The FTC reviewed 62 conglomerates with more than 5 trillion won ($4.5 billion) in assets in April and found 13 conglomerates used loan guarantees worth a total of 1.08 trillion won. That was 551.9 billion won, or? 33.8 less than last year.

In 1998, when the government first acted to limit debt guarantees among affiliates of conglomerates, the size of the guarantees reached its peak of 63.5 trillion won. It has been steadily decreasing and was 1.5 trillion won in 2010 and 2.9 trillion won in 2011.

“Since 2006, the amount of debt guarantees fluctuated in the range of 2 trillion won, but the total size tends to gradually decrease,” said an FTC official.

According to the FTC, companies with more than 100 billion won in debt guarantees were Hanjin Group?, Halla Group? and E-Land Group?.

Meanwhile, debt guarantees exempted from government regulations also have decreased each year. Such guarantees were found in six conglomerates worth a total of 433 billion won, half the 871 billion won found in 12 conglomerates last year.

Debt guarantees subject to exceptions are those that have been granted a grace period before they are regulated.

This year, large corporations that possess the debt guarantees subject to exceptions were E-Land Group (169.6 billion won)?, Halla Group (133.6 billion won)?, Hansol (47.2 billion won)?, Taeyoung (34.8 billion won)?, Woongjin (30.6 billion won)? and AmorePacific? (17 billion won). Hansol and AmorePacific? were categorized as conglomerates for the first time this year.

The debt guarantees excluded from the ban were found in eight conglomerates and worth a total of 648 billion won.

Those related to strengthening international competitiveness and the rationalization of industry also are excluded from the prohibition. The amount of excluded debt guarantees fell by 14.9 percent from 761.9 billion won to 648 billion won, according to the FTC.


BY kim jung-yoon [kjy@joongang.co.kr]

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