FTC hits Jungheung Group for uncompensated support to company owned by corporate scion

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FTC hits Jungheung Group for uncompensated support to company owned by corporate scion

Published: 09 Jun. 2025, 16:52 Updated: 09 Jun. 2025, 18:26

Audio report: written by reporters, read by AI

Jungheung Construction's headquarters in Gwangju [JOONGANG ILBO]

Jungheung Group, one of Korea’s major construction conglomerates, has been hit with sanctions over a yearslong scheme that funneled billions in financial support to a company owned by its second-generation heir — all without proper compensation.

The Fair Trade Commission (FTC) on Monday imposed corrective orders and fined Jungheung Construction 18.02 billion won ($13 million) for violations of the Monopoly Regulation and Fair Trade Act. The agency also announced plans to refer the company to prosecutors for possible criminal charges.

From July 2015 to February 2024, Jungheung Construction provided free credit guarantees worth 3.21 trillion won for 24 project financing and securitized loan deals involving 12 residential and industrial development projects led by subsidiary Jungheung Engineering & Construction (E&C), according to the FTC.

Jungheung Group Vice Chairman Jung Won-ju, who owns 100 percent of Jungheung E&C, directly benefited from these transactions through increased equity value, dividends totaling 65 billion won and salary income of 5.1 billion won.

The FTC determined that this arrangement was part of a broader succession plan to shift control of Jungheung Construction’s operations to Jungheung E&C, fully owned by second-generation heir Jung.

When Jung acquired Jungheung E&C in 2007, the firm was valued at just 1.2 billion won and lacked the creditworthiness to secure major loans independently.

But Jungheung Construction stepped in by issuing joint guarantees and financial backup agreements that allowed Jungheung E&C to raise 2.9 trillion won in capital without offering market-based compensation.

Typically, construction firms receive fees or equity stakes in return for such guarantees. The market value of Jungheung’s guarantees is estimated at a minimum of 18.1 billion won.

With the backing, Jungheung E&C grew rapidly. By the end of 2023, the firm and its affiliates reported annual revenue of 6.68 trillion won and profits of 1.07 trillion won. Its construction capability ranking jumped from 82nd in 2014 to 16th in 2023.

In 2021, it acquired Daewoo E&C, then the fifth-ranked builder in the country. By 2023, it transitioned into a holding company structure and became the central firm of a group comprising over 40 affiliates — a key milestone that the FTC said marked the effective conclusion of the succession process.

A Fair Trade Commission official speaks during a press briefing at the FTC’s office in Sejong on June 9. The FTC announced corrective orders and fines against Jungheung Construction, part of the Jungheung Group designated under cross-shareholding restrictions, for providing free credit support for project financing and securitized loans tied to housing and industrial complex developments led by Jungheung E&C and its six affiliates. The FTC also decided to refer Jungheung Construction to the prosecution. [YONHAP]

The FTC cited testimony by Jung during a 2022 tax tribunal review in which he acknowledged the reorganization of the business and governance structure around Jungheung E&C as part of a planned strategy.

However, the commission did not charge group founder Chung Chang-sun, who holds the legal title of group head, citing a lack of evidence that he was directly briefed on the free guarantees.

“We fully explained our position to the FTC, but it seems our explanation was not adequately considered,” a spokesperson for Jungheung Construction said. “We will review the commission’s ruling and prepare a response accordingly.”

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY JEONG JAE-HONG [[email protected]]