Loss from Keangnam accounting and bribery scandal totals W1.1 trillion; The late former chairman of Keangnam Enterprises, Sung Woan-jong, who set up his business with pocket money and went on to establish a company that exceeded 2 trillion won in sales, was almost penniless when he killed himself

Updated : 2015-04-22 18:05


Updated : 2015-04-22 18:14

Loss from Keangnam scandal totals W1.1 tril.

By Yoon Ja-young

Lenders, subcontractors and investors are expected to sustain some 1.1 trillion won in losses due to Keangnam Enterprises, a construction company at the center of a recent bribery scandal.
The company, which was founded in 1951, has been making headlines since its chairman, Sung Woan-jong, committed suicide two weeks ago, leaving a list of politicians he claimed to have bribed. On the list were close aides to President Park Geun-hye, including Prime Minister Lee Wan-koo, who has offered to resign. Sung was being investigated for alleged corruption in the “energy diplomacy” of administration of former President Lee Myung-bak. According to financial industry sources, 17 banks and non-bank lenders have exposure to Keangnam. Among them, the state-run Export-Import Bank of Korea sustained the biggest loss as Keangnam has 520.8 billion won in debt with the bank. Shinhan Bank lent 176.1 billion won, and Korea Development Bank (KDB), Nonghyup and Suhyup have more than 50 billion won in loans each.
Keangnam also borrowed a total of 11.8 billion won from Woori Investment Bank, SBI Savings Bank and KT Capital; and 23.5 billion won from Daewoo Securities and Yuanta Securities.
Of the 1.35 trillion won in loans provided by 17 lenders, 740 billion won will not be retrievable as they are loans without collateral.
Lee Ji-eun, a senior research fellow at the Korea Institute of Finance, said there should be more thorough monitoring and restructuring of businesses that are chronically insolvent.
“The ratio of delinquent companies with low profitability is rising,” he said. “As these companies are getting more loans, they could trigger risks in the financial industry.”
Some banks, including Export-Import Bank of Korea, Shinhan, KDB, Suhyup and Nonghyup, sustained 75 billion won in losses from the Keangnam shares they had been holding due to a debt-equity swap.
The company was delisted last week because losses had wiped out its equity capital.
About 7,900 small investors who hold Keangnam shares have sustained 35 billion won in losses due to the delisting.
Subcontractors of Keangnam, totaling more than 1,600, are also expected to sustain losses, considering that only 30 percent of the bonds are retrievable, on average, once a business enters court receivership. It means they will lose about 250 billion won out of the 356 billion won Keangnam owes them.
As creditors of Keangnam rejected the company’s request for additional financial support, the Seoul Central District Court determined that it should go under court receivership.
Concern is also increasing that some of the Keangnam subcontractors may go bankrupt.

‘Sung was penniless when he committed suicide’

By Kim Rahn

The late former chairman of Keangnam Enterprises, Sung Woan-jong, who set up his business with pocket money and went on to establish a company that exceeded 2 trillion won in sales, was almost penniless when he killed himself, sources said Wednesday.
His former aides say that Sung, a Korean example of a rags-to-riches success story, had almost no personal fortune at the time of his death, instead owing 200 billion won in bank loans.
But many observers of the scandal doubt if he was actually bankrupt because he allegedly embezzled company funds for personal use and for bribing politicians.
Sung, who didn’t even finish elementary school due to the poverty of his family, came to Seoul at the age of 12 with almost nothing.
Following dozens of menial jobs, he acquired a construction firm in 1976 and took over Dae-a Engineering & Construction. He acquired Keangnam in 2003 and later led the company to record 2 trillion won in annual sales.
In April 2012 when he first became a lawmaker, he reported personal wealth of 15.2 billion won, the seventh largest among 300 lawmakers at that time. Most of his assets were stocks, including 3.4 million shares in Keangnam and 740,000 shares in Dae-a Leisure, a Keangnam subsidiary.
Keangnam’s stock price fell from 6,000 won in 2012 to 3,500 won in 2013 as the company fell into a debt-workout program. His wealth in turn almost halved to 7 billion won in 2013. He also left all his shares to creditor banks as securities.
When he lost his National Assembly seat for violations of the Election Law in 2014, he reported that he was 700 million won in debt.
Sung did not have a house registered in his name. A house in affluent Cheongdam-dong in southern Seoul, where he lived until he committed suicide, is worth over 2 billion won and is owned by his wife.
The only property he owned was some 17,000 square meters of land in South Chungcheong Province, with a value estimated at 280 million won.
However, speculation is rife that he had various other hidden assets, as the company funds he is thought to have embezzled through accounting fraud were allegedly diverted to Keangnam affiliates owned by members of his family.


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