Updated : 2015-03-29 18:25
Prosecution probes fraud allegations at Keangnam
By Kim Rahn
Prosecutors are investigating allegations of fraudulent accounting at Keangnam Enterprises, a construction company at the center of a probe into the Lee Myung-bak administration’s failed “energy diplomacy.” Prosecutors suspect that the company fabricated its financial situation while it was in the debt workout program. They believe the company did this in order to qualify for the government’s special loans for overseas energy development projects.Sources at Seoul Central District Prosecutors’Office said Sunday that Keangnam’s credit rating when the loans were issued was suspicious.
According to regulations, companies eligible for the special loans should have a CCC credit rating, meaning there is a possibility that a company could default on repayments.
But a credit rating agency rated Keangnam’s financial status at BBB-, meaning it had a strong ability to repay debts, but with the possibility that this could diminish.
Using this rating, Keangnam obtained government loans for several projects, including $10 million to develop an oilfield in Russia and a gas field in Kazakhstan. Both projects failed.
When parts of the loan for the projects were provided, Keangnam was under a debt-workout program from January 2009 to May 2011.
“Companies under a workout program undergo financial restructuring due to a high possibility of default,” a prosecutor said. “But during its workout period, Keangnam obtained a credit rating of BBB- or higher every year and received the loan.”
Prosecutors recently questioned former and incumbent officials from the Korea National Oil Corp. in charge of the special loans and those from Keangnam in charge of accounting about the suspicious loans.
“We don’t rule out the possibility that Keangnam bribed the credit rating agency to get a good assessment,” the prosecutor said. “We are also looking into whether the company cooked the account books through continuous accounting fraud.”
Prosecutors are also investigating if Keangnam Chairman Sung Woan-jong, a former ruling Saenuri Party lawmaker and a close confidant to former President Lee Myung-bak, exercised influence on creditor banks and financial authorities.
Previously, the Board of Audit and Inspection was tipped off that the Financial Supervisory Service told officials at Keangnam’s creditor banks to grant favors to the company when it applied for another workout in October 2013.
“The creditors promised to inject 630 billion won into the company at that time,” the prosecutors said. “We are investigating whether corruption was involved in their decisions.”
The prosecution is also investigating the company’s alleged creation of a slush fund worth about 10 billion won by embezzling part of the loan.