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

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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.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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