2 more affiliates seek receivership

With two more affiliates of debt-ridden Tongyang Group filing for court receivership yesterday, survival of the country’s 38th-largest conglomerate has become uncertain. Speculation is also high that eventually the group will dissolve, depending on how the court decides to revive the affiliates, if it chooses to do so.

Yesterday, Tongyang Group said in a statement that it has applied for court receivership for Tongyang Networks and Tongyang Cement following the same move of three affiliates on Monday. Being unable to pay back more than 100 billion won ($93.1 million) in debt due at the end of last month, the conglomerate, in its first round of restructuring, sought receivership for Tongyang Corporation, Tongyang Leisure and Tongyang International.

“The decision was made after carefully reviewing what option would be best to bring business stability as early as possible and to protect investors,” said an official from Tongyang Group.

Market analysts had predicted the conglomerate would push forward a workout program for Tongyang Cement, the founding company of the conglomerate, as its debt-to-equity ratio is lower than other affiliates.

Tongyang Group was founded in 1957 as a cement company and expanded to other areas, including construction and financial services.

Based on the conglomerate’s cross-shareholding structure of affiliates, Chairman Hyun Jae-hyun has 4.45 percent stock ownership of Tongyang Corporation and 30 percent of Tongyang Leisure. Tongyang Corporation owns 100 percent of Tongyang International, which owns 19.09 percent of Tongyang Cement.

“If the court requires the owner to sell his assets, including stocks, to pay back debt, then there would be a high probability that he will lose management control in the end,” said an industry official. “The group then would dissolve, as shares of affiliates would be owned by others.”

Market analysts expect the conglomerate to sell other core affiliates like Tongyang Securities, Tongyang Power and Tongyang Magic to repay the debt. According to Korea Securities Depository, Tongyang Group needs 480 billion won to pay the debt, which includes commercial paper and corporate bonds. The amount is much larger than the 110 billion won in debt that matured last month that the conglomerate was unable to repay.

Meanwhile, concerns are rising that the credit crisis of Tongyang Group is affecting individuals that have invested in corporate bonds and commercial paper offered at a higher interest rate than the market average.

According to data from the Financial Supervisory Service, 49,000 people invested in corporate bonds and commercial paper of group affiliates worth 2.2 trillion won. The conglomerate, instead of pushing for a self-restructuring to avoid a credit crunch, had so far brought in funds by issuing high-interest but high-risk corporate bonds and commercial paper to individual investors through its brokerage affiliate Tongyang Securities.

“Tongyang Securities has been injecting funds to its ailing affiliates by selling commercial paper and corporate bonds to tens of thousands of people in an unfair manner,” the Financial Consumer Agency said yesterday. “The company persuaded housewives and other retail consumers with relatively little financial knowledge to invest in products of Tongyang Securities, saying it was safe and the principle of the investment is guaranteed with additional profit from high interest.”

The financial regulator is now being blamed for not monitoring possible unfair practices by Tongyang Securities, as alleged by the Financial Consumer Agency.

“The responsibility of the financial authority is big,” said an official from the agency.

BY Lee Eun-joo [angie@joongang.co.kr]