Korea Investment faces sanctions for SK lending

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Korea Investment faces sanctions for SK lending

By Park Hyong-ki

FSS headquarters in Seoul / Courtesy of FSS
The Financial Supervisory Service (FSS) has again decided to push back its decision on whether to impose sanctions on Korea Investment & Securities for its illicit lending to SK Chairman Chey Tae-won, the regulator said Friday.

The securities company has been under investigation for raising funds via commercial papers to provide money to Chey's special purpose company (SPC) through a derivatives contract for further acquisition of SK Siltron shares in August 2018.

The FSS has said this was a violation of the Capital Market Law, which forbids investment banks from extending a line of credit to any individuals via the issuing of commercial papers.

Korea Investment was designated an investment bank by the regulator in November 2017. This means it can issue commercial papers worth up to 200 percent of its equity capital for investment.

This designation was aimed at fostering investment banks to enable funds raised from debt securities to finance startups and any promising tech companies.

The FSS decided Jan. 10 that it would again conduct a review on Korea Investment in relation to SK Siltron.

It did not further specify the timeline of its next meeting. However, the FSS is scheduled to hold regular disciplinary review sessions Jan. 15 and 24.

Korea Investment declined to comment.

SK Group said it was a "victim" of Korea Investment's derivatives contract called a total return swap.

"The company did not know the full details of where the actual source of the investment from Korea Investment & Securities came from at that time," said an SK spokesperson.

SK Corp. already held a 51 percent stake in SK Siltron, formerly LG Siltron, in August 2018 when a group of private equity funds (PEF) sought to sell their shares in the silicon wafer maker.

The PEFs hoped SK would exercise its right of first refusal and acquire all their shares given the lack of interest from other strategic or financial investors.

SK only needed to acquire an additional 20 percent stake in Siltron for about a 70 percent stake to put the wafer maker under its control.

But it went ahead to acquire more than that by making swap deals with Korea Investment and Samsung Securities through two special purpose companies.

Samsung Securities used its own capital to back the deal for Siltron shares. Korea Investment, on the other hand, used other people's money.

Chey is the biggest shareholder of SK Corp. with a 23.4 percent stake. The Korea Investment-backed SPC has a 19.4 percent stake in Siltron, and the Samsung Securities-backed SPC has a 10 percent stake, according to SK Siltron's audit filing.

The swap deal allows financial investors such as brokerages or hedge funds to provide funds to companies that need the capital to invest in an asset, without the hassle of owning the asset's equities. Investors can earn returns as the value of the asset increases during the contract period.



By Park Hyong-ki

FSS headquarters in Seoul / Courtesy of FSS
The Financial Supervisory Service (FSS) has again decided to push back its decision on whether to impose sanctions on Korea Investment & Securities for its illicit lending to SK Chairman Chey Tae-won, the regulator said Friday.

The securities company has been under investigation for raising funds via commercial papers to provide money to Chey's special purpose company (SPC) through a derivatives contract for further acquisition of SK Siltron shares in August 2018.

The FSS has said this was a violation of the Capital Market Law, which forbids investment banks from extending a line of credit to any individuals via the issuing of commercial papers.

Korea Investment was designated an investment bank by the regulator in November 2017. This means it can issue commercial papers worth up to 200 percent of its equity capital for investment.

This designation was aimed at fostering investment banks to enable funds raised from debt securities to finance startups and any promising tech companies.

The FSS decided Jan. 10 that it would again conduct a review on Korea Investment in relation to SK Siltron.

It did not further specify the timeline of its next meeting. However, the FSS is scheduled to hold regular disciplinary review sessions Jan. 15 and 24.

Korea Investment declined to comment.

SK Group said it was a "victim" of Korea Investment's derivatives contract called a total return swap.

"The company did not know the full details of where the actual source of the investment from Korea Investment & Securities came from at that time," said an SK spokesperson.

SK Corp. already held a 51 percent stake in SK Siltron, formerly LG Siltron, in August 2018 when a group of private equity funds (PEF) sought to sell their shares in the silicon wafer maker.

The PEFs hoped SK would exercise its right of first refusal and acquire all their shares given the lack of interest from other strategic or financial investors.

SK only needed to acquire an additional 20 percent stake in Siltron for about a 70 percent stake to put the wafer maker under its control.

But it went ahead to acquire more than that by making swap deals with Korea Investment and Samsung Securities through two special purpose companies.

Samsung Securities used its own capital to back the deal for Siltron shares. Korea Investment, on the other hand, used other people's money.

Chey is the biggest shareholder of SK Corp. with a 23.4 percent stake. The Korea Investment-backed SPC has a 19.4 percent stake in Siltron, and the Samsung Securities-backed SPC has a 10 percent stake, according to SK Siltron's audit filing.

The swap deal allows financial investors such as brokerages or hedge funds to provide funds to companies that need the capital to invest in an asset, without the hassle of owning the asset's equities. Investors can earn returns as the value of the asset increases during the contract period.





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