KT faces legal battle with banks
By Kim Yoo-chul
An affiliate of KT is facing a legal dispute with banks and brokerages after its employee was found to be involved in a large-scale loan fraud.
The banks claim that KT ENS should be held accountable because the loan-application document involved has an official stamp from the company, while the affiliate counters it is an issue of personal misconduct not related to the company and KT ENS did not guarantee payment for its receivables.
The Seoul Metropolitan Police Agency (SMPA) said Friday that it plans to issue an arrest warrant to a KT ENS employee, surnamed Kim, as the police secured evidences to prove that Kim took out some 280 billion won ($260 million) in loans offered to its subcontractors.
Of the 280 billion won, 200 billion won was from Hana Bank (162.4 billion won), NH NongHyup Bank (18.9 billion won) and KB Kookmin Bank (29.6 billion won), and the rest from 10 savings banks.
The loans were guaranteed by other financial firms such as brokerage firms, including Korea Investment & Securities.
An official at Hana Bank said it plans to bring the issue to a local court in cooperation with other banks and financial firms.
“A KT ENS employee was involved and we also saw an official company stamp on the document submitted to the bank. KT ENS should pay back the loans.”
Brokerage houses are also considering filing a lawsuit against the KT affiliate.
“As collateral was found as fake, there’s no legal obligation for payment guarantee. We may sue the KT affiliate. However, procedures will depend upon situations,” said an official at Korea Investment.
KT ENS said it is checking details, but claims that it is not responsible for the loan fraud.
Officials at KT ENS said the incident has no relation to the company as the issue is “personal” and not “company-organized.”
“KT has asked the banks to share documents to find out the exact details. But the banks refused to share the documents. We are persuading the involved banks,” said an official at KT.
Because the CEO position at KT ENS is now vacant, KT may directly intervene in the scandal, said the official.
According to the Financial Supervisory Service (FSS), the banks had extended the loans to a special purpose company (SPC) set up by KT ENS's subcontractors with receivables as collateral.
The employee was found to have withdrawn part of the loans from the banks, raising suspicions that the subcontractors might have colluded with the tech firm employee.
The subcontractors supplied mobile handsets to KT ENS, and its receivables were transferred to the SPC.
The FSS said the documents submitted to the banks were fake and receivables were not real.
In addition to the recent rating cut by Moody’s Investors Service, the loan fraud scandal is expected to throw additional burden on new chairman Hwang Chang-gyu, who is now trying to overhaul the organization.
On Feb. 4, the global credit ratings agency downgraded KT’s corporate rating which will force KT to pay more in interest when it borrows money at international financial markets.
“KT should pay at least an additional 1 percent interest rate due to the downgrade decision. Last year, KT’s total borrowings reached to 11.5 trillion won on a consolidated basis,” said Kim In-tae, chief investment officer at MIDO Investment.
The new chairman is trying to reform the company by downsizing operations and reshuffling the management.
“The new CEO will fold unprofitable businesses including key overseas business projects. Affiliates related to media content, cloud and non-telecom businesses are the primary targets that should be restructured,” said the KT official.