Photo = CJ

 

 

[Alpha Biz= Kim Jisun] South Korea’s Fair Trade Commission (KFTC) has initiated sanctions proceedings against CJ Group over allegations that it unfairly supported affiliated companies through total return swap (TRS) agreements.



According to industry sources on May 13, the KFTC has issued a review report—a document equivalent to a prosecutor’s indictment—outlining suspected violations of the Fair Trade Act by CJ Corp. and its affiliate CJ CGV. While TRS is a financial derivative that exchanges the total return from an underlying asset, it can effectively function as a form of inter-affiliate debt guarantee.



CJ is alleged to have entered into TRS agreements with Hana Financial Investment in December 2015 to support the issuance of KRW 50 billion (approx. USD 36 million) in convertible bonds by its affiliates CJ Foodville and CJ Construction. CJ CGV is also accused of helping its affiliate Simuline issue KRW 15 billion (approx. USD 11 million) in convertible bonds in August 2015, by facilitating their purchase by Hana Daetoo Securities.



The KFTC believes the two companies unfairly provided a total of KRW 115 billion (approx. USD 83 million) in financial support to their affiliates through these arrangements. The review report reportedly includes a recommendation for the criminal referral of CJ Corp.



The commission plans to convene a full session soon to decide whether to impose sanctions and determine the appropriate level of penalties.

 

 

 

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