Tongyang Group Chairman Hyun Jae-hyun is likely to lose his control of the company as five affiliates have filed for court protection to avoid bankruptcy

2013-10-01 18:15

Tongyang chief may lose control

By Choi Kyong-ae

Tongyang Group Chairman Hyun Jae-hyun is likely to lose his control of the company as five affiliates have filed for court protection to avoid bankruptcy.
As he failed to guide Tongyang through the continued economic slowdown, economists urged Hyun to step down as chairman taking responsibility for the current dire situation at the conglomerate.“Under his leadership, Tongyang affiliates have continued to raise the funds they needed in operating their businesses by selling corporate bonds and commercial papers to individual investors,” Lee Phil-sang, invited professor at the economics department of Seoul National University, told The Korea Times by telephone. “It is nothing other than a moral hazard.”
The professor said Tongyang should have heightened its efforts to restructure, or streamline, its affiliates to survive a prolonged slump in the construction and securities industry hit hard by the 2008 financial crisis.
Earlier in a belated effort, Tongyang announced its wider restructuring plan to raise funds worth 2 trillion won ($1.9 billion) in the first half of 2013 through the sale of its assets. Back then, the group said it would be rearranging its business portfolio, focusing on the cement, finance and energy businesses, by the end of this year.
Under the plan, the cement-to-brokerage conglomerate has sold some assets such as heat-recovery plants, ready-mixed concrete plants and warehouses since late last year. But major deals to sell Tongyang Magic, the oven-making unit, and Tongyang Power, the coal-fired power plant operator, collapsed early this week, coincidentally with the receivership filed for by the five companies.
Dismissing Tongyang’s restructuring efforts, Lee said “Tongyang has taken investors hostage to carry on with its businesses. Worse still, few affiliates are likely to stand on their own feet due to heavy debts they owe to financial companies and investors.”
As of the end of August, Tongyang Group owes 900 billion won to financial firms, including 450 billion won to the state-run Korea Development Bank, and 2 trillion won in the form of corporate bonds and commercial papers to retail investors.
In only two days from Monday through Tuesday, five Tongyang affiliates ㅡ Tongyang Inc., Tongyang Leisure, Tongyang International, Tongyang Networks and Tongyang Cement ㅡ all filed for the court-led debt rescheduling program after they failed to pay maturing debts valued at 110 billion won, Tongyang Group confirmed.
Following the receivership applications, the Seoul Central District Court will decide on whether to give the go-ahead to the protection request by Tongyang affiliates or to let them go belly up and liquidated.
Experts say the financial authorities also played a role in allowing individual investors to fall victim to years of misconduct made by Tongyang.
“The Financial Supervisory Service should have done its monitoring duty more thoroughly to protect investors when the financially unhealthy Tongyang sold massive corporate bills and bonds through its brokerage unit in the past several years,” Kim Sang-Jo, an economics professor at Hansung University, said.
On Monday, the FSS set up a separate team to accept reports from retail investors who claim to have bought Tongyang’s corporate bills without sufficient explanation about the group’s financial status and possible losses in recent years.