Rattled by the liquidity crisis, investors who bought Tong Yang Group debts raised suspicions that the company had cheated them into buying such assets with no warning of the crippling finances, sources said Wednesday.
In July and September, Tongyang Inc., the de facto holding company of the group, issued some 156.9 billion won (US$146 million) worth of asset-backed commercial papers (ABCPs), a type of short-term debts, via a special purpose company it set up to raise money, according to brokerage sources.
Two-thirds of such debts were floated with assets of Tongyang Cement & Energy as collateral and sold to a lot of investors last month, up until two weeks before the 38th-largest conglomerate filed for court receivership of three of its units on Sept. 30.
Tong Yang Group has requested the court to shield the assets and properties of five of its affiliates since then, after failing to secure enough funds to repay maturing debts worth 110 billion won by the end of last month.
Enraged investors accused the group's brokerage unit, Tongyang Securities Inc., of lying to them about the safety of Tong Yang assets, with some of them claiming that there was a deliberate fraud.
Officials at Tongyang Securities refuted such accusations, turning the criticism toward the group's management, including the owner Hyun Jae-hyun.
"Filing for court receivership is highly intended to protect the ownership. The chairman was so sure about not letting his firm be placed under the court's control even a few days before (it filed for one)," said an official from the brokerage house, asking not to be named.
Unionized workers at Tongyang Securities have set out to deter the court's approval of the receivership by submitting a petition, its union said. They also plan to talk to the Korea Development Bank, the largest creditor of Tongyang Cement & Energy, about other possible turnaround measures.
A local consumer advocate group, meanwhile, said it will lodge a grassroots claim against the conglomerate to the Financial Supervisory Service for an official probe, as well as seek a class action suit to demand compensation.