Loan guarantees between conglomerate units soar this year
Main office of the Fair Trade Commission in Sejong (Yonhap)
Of the 40 listed subsidiaries of the conglomerate, total corporate debt payment guarantees by eight units reached 1.16 trillion won ($ 993 million) as of May 1, up 1,242% compared to 86.4 billion won the previous year, according to the Korea Fair Trade Commission (KFTC).
The jump was led by four major business groups – Celltrion, Netmarble, Hoban Construction and SM – who were recently added to the company watch list this year.
The value of their loan guarantees totaled 1.09 trillion won, with the remainder being insured by SK, GS, Doosan and KCC.
Under the Fair Trade Law, subsidiaries of large conglomerates with assets exceeding 10,000 billion won are not permitted to invest in their affiliates or provide loan guarantees. But newly appointed conglomerates or new subsidiaries are given a two-year grace period to eliminate loan guarantees.
Interaffiliate loan guarantees have been banned in South Korea since 1998, as they were considered one of the main causes of the Asian financial crisis of 1997-98.
The commission said 110 financial and insurance units from 20 business groups had invested 12.3 trillion won in 265 subsidiaries as of May 1, up from 11.1 trillion won a year earlier. (Yonhap)