Joongang Group bond investors say JTBC was insolvent before corporate bonds were issued

Bondholders in Joongang Group affiliates, including the general programming channel JTBC, urged financial regulators Monday to investigate the entire process of issuing and selling the corporate bonds, saying JTBC had been in effect fully insolvent even before the bonds were issued.

In response, JTBC said Monday it had "appropriately disclosed its financial situation in accordance with corporate accounting standards in connection with the issuance of hybrid securities and the execution of hybrid loans, and complied with the Capital Markets Act."

The joint legal team representing Joongang Group bond victims held a press conference Monday morning at the Bar Association building in Jongno-gu, Seoul, and announced it had submitted a written opinion to the Financial Supervisory Service on Friday containing those claims.

The opinion outlined the damages suffered by 250 claimants whose losses have been confirmed — totaling about 32.52 billion won — and set out requests directed at financial authorities.

The legal team said its own tally showed roughly 450 individual accounts had invested in Joongang Group corporate bonds, with total investments reaching about 76 billion won ($51.9 million).

The team argued that if the 154.4 billion won in affiliate-acquired hybrid securities classified as capital were excluded, JTBC's actual total equity stood at negative 135.4 billion won. It added that the company had issued 40 billion won in hybrid securities just before its fiscal year-end to avoid a full capital impairment on paper.

The team added that JTBC had posted large losses for three consecutive years and that its audit reports had noted risks including unmet financial covenants and liquidity dangers in the event of a credit rating downgrade — information, the team said, that was verifiable from public disclosures alone.

The legal team also claimed that Shinhan Investment, the lead underwriter, had concluded that "repayment of principal and interest would proceed without difficulty" and proceeded to manage the bond issuance even after recognizing those risks.

"Shinhan Investment listed the risk factors in its own due-diligence report and still presented a positive conclusion," the team said, adding that an on-site inspection had been replaced by a single day of telephone meetings.

The team further claimed that corporate bond trading had continued on brokerage applications without any notable risk warnings even after the capital impairment was disclosed, and that investor relations materials emphasizing positive information had been distributed to retail investors through KakaoTalk group chats run by discretionary investment firms just before the issuance.

Regarding Kiwoom Securities, which sold short-term bonds, the team claimed that customer service representatives had directly guided investors to register refusals of follow-up calls, effectively preventing investor protection procedures from functioning properly.

"While a large number of retail investors suffered enormous losses, Shinhan Investment, Kiwoom Securities and JTBC all gained considerable economic benefit," the legal team said, urging financial authorities to launch an investigation.

The team added that it had requested the scope of the investigation be expanded beyond Shinhan Investment and Kiwoom Securities to include Hanyang Securities, exchange-floor brokerage firms, discretionary investment companies and credit rating agencies. It also asked that individual complaints be consolidated for joint processing and that immediate data-preservation measures be taken for key evidence such as emails.

On the legal team's claim that 33 billion won had flowed to an insolvent subsidiary after the bond issuance, JTBC said Studio Aye Joongang — which received the 33 billion won loan — was a wholly owned subsidiary that produces JTBC entertainment programs, and that 13 billion won of that amount had been lent to cover essential production costs for the supply of entertainment programming.

JTBC said the remaining 20 billion won represented a conversion of asset-backed bonds previously issued by Studio Aye Joongang under JTBC's debt guarantee into a loan, and that no actual funds had left the company.

"We recognize the weight of our responsibility and will make every effort to protect investors' rights while keeping lines of communication with them as open as possible," JTBC added.

The Joongang Group financial crisis began when JTBC declared a default on June 12 after failing to repay 20.6 billion won in asset-backed borrowings at maturity.

Two days later, on June 14, Joongang Holdings, ContentreeJoongAng, Joongang P&I and Megabox Joongang filed for court receivership, followed the next day by JTBC itself — the epicenter of the crisis.

The court accepted JTBC's application for an autonomous restructuring support program, deferring a ruling on whether to open formal rehabilitation proceedings, while granting rehabilitation proceedings for the other four affiliates.

Joongang Group bondholders have moved to pursue legal action, recently retaining Lee Bok-hyun, a former prosecutor and ex-head of the Financial Supervisory Service, as their legal representative.