Tongyang plight worsens
The information was contained in a company petition submitted to the court on Wednesday.
The bonds are similar to asset-backed commercial paper in that they raise money using marketable securities and accounts receivable as the underlying assets. The difference is that asset-backed short-term bonds, or Abstb, are issued with maturities of a year or less and they allow split transfers. The company is also required to disclose information, such as the particulars of issuance, to the Korea Securities Depository.
According to Tongyang Group and the Financial Supervisory Service (FSS) on Wednesday, the embattled family-run group decided to securitize the shares held by Tongyang Cement as the financial stress became severe.
In July, the group started issuing Abstb through a program known as Special Purpose Corporate TY Success at Tongyang Securities.
In September, when it became difficult for the group to sell commercial paper as reports of the company’s financial difficulties began to surface, it shifted its focus to the sale of bonds.
Tongyang Securities encouraged customers to purchase bonds, explaining that Tongyang Cement stock, which was the underlying asset, were from a superior company with a 196 percent of debt-to-equity ratio.
Tongyang Cement filed for court receivership Monday.
Since July, the company sold shares worth 156.9 billion won ($146.5 million), and 97 billion of that was since September.
Bond sales in September occurred at a time when the company could actually estimate investors’ losses.
Tongyang Group even requested that the Orion Chairman Dam Chul-gon enhance its credit.
“It is definitely a problem that the company sold bonds to individual investors until right before the company was to collapse,” said an FSS official.
In the process, there is the suspicion that executives of the group reassured the investors no court receivership was forthcoming.
The labor union of Tongyang Securities said Tongyang Group Chairman Hyun Jae-hyun ordered the president of Tongyang Securities to continue selling Abstb, saying on several occasions until the day before Chuseok that it would never go through court receivership procedures, according to the petition filed Wednesday.
Meanwhile, Tongyang Securities branch managers signed and circulated a compact criticizing the owner’s family on Wednesday.
The labor union submitted a petition to Chuncheon District Court seeking dismissal of receivership.
“The application of court receivership of Tongyang Cement can only be understood as the owner family’s defensive actions to protect management,” said Kim Hyun-min, vice chair of the Tongyang Securities union. “When the receivership is accepted by the court, the tragic event of investors claiming damages against individual employees of Tongyang Securities could occur.”
Meanwhile, Tongyang Group refuted claims by the employees regarding fraudulent issuance of bonds and owner self-interest.
“Until Sept. 26, we were convinced that we could revive the company through the sale of Tongyang Power. We did not sell Abstb knowing that the company would face bankruptcy,” said a spokesman for Tongyang Group.
The group also claimed the application of court receivership was intended to return money to private investors by selling assets properly.
Meanwhile, the owner family of the group and executives are showing signs of leaving the company.
BY YOON CHANG-HEE, HONG SANG-JI [firstname.lastname@example.org]
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