FTC fines Hyosung over shady deal with affiliate

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FTC fines Hyosung over shady deal with affiliate

Korea’s antitrust agency fined Hyosung Group 3 billion won ($2.9 million) and recommended that the prosecution investigate company Chairman Cho Hyun-joon and two other executives for illegally financing an ailing affiliate.

According to the Fair Trade Commission (FTC) on Tuesday, Galaxia Electronics, an LED light producer that Cho owns a 68.3 percent stake in, has been in a financial and management crisis since 2012. The company’s debt-to-capital ratio was 1,829 percent in 2014.

Cho Hyun-joon took over the chairmanship of Hyosung Group from his father, company founder Cho Seok-rae, in 2017.

Cho decided to prop up Galaxia by having it issue 12 billion won worth of convertible bonds in 2014 and 13 billion won in 2015, despite the company’s inability to finance the bonds.

Hyosung Investment & Development Corporation put up collateral worth 29.6 billion won in real estate that covered the risk of convertible bond fluctuation.

The FTC said the exchange benefited Galaxia Electronics and Cho by protecting the chairman’s investment and management control of the company. Galaxia did not have the ability of its own to secure the finance that it needed, and Hyosung Investment & Development faced all the risks with no possibility of returns.

“There was no rational reason for Hyosung Investment & Development to participate, as the benefits were solely returned to Galaxia Electronics,” said Shin Bong-sam, head of the conglomerate investigation bureau at the FTC. “This is considered unfair profiting by Galaxia Electronics and Cho.”

After the announcement was made by the FTC, Hyosung Group said that the decision to cover Galaxian’s bonds was rational and did not benefit Chairman Cho.


BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]

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