Joongang Group bondholders ask Financial Supervisory Service to audit accounting practices

Bondholders of Joongang Group affiliates have asked the Financial Supervisory Service to conduct an accounting audit of the conglomerate.

Legal counsel representing bond investment victims of Joongang Group said Sunday that on Friday they submitted a formal audit request to the Financial Supervisory Service covering the financial statements and audit reports of five companies: JTBC, JoongAng Holdings, Dabo Joongang, ContentreeJoongAng and Megabox Joongang.

The legal team said it reconstructed the flow of funds using public disclosure materials and found that JTBC had issued 226 billion won ($154 million) in hybrid securities across nine rounds since 2023, with most of the securities taken up by affiliates or by SPCs whose credit had been enhanced by affiliates. They said they questioned "whether it was appropriate for JTBC to classify the 226 billion won in hybrid securities as 'capital' in its accounting."

According to the legal team, Dabo Joongang acquired 54 billion won worth of JTBC hybrid securities in 2024, of which 40 billion won on the payment date had been borrowed from JoongAng Holdings. Those funds came from personal loans made by Joongang Group Vice Chairman Hong Jeong-do and JoongAng Holdings Chairman Hong Seok-hyun, as well as proceeds from short-term electronic bonds issued by ContentreeJoongAng. The lawyers said "the personal funds of the controlling family and short-term borrowings from affiliates effectively became JTBC's capital after passing through the holding company."

The legal team said the audit request was motivated by a desire to determine "whether the group concealed a capital-impairment situation through book capital recorded using funds circulated internally within the group, and then sold bonds to individual investors."

The investors had earlier, on July 13, urged financial authorities to conduct an inspection, saying "JTBC was in effect in a state of complete capital impairment even before it issued corporate bonds."

JTBC rebuffed the claims, saying it "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."