Shinhan, Kiwoom face probe over JTBC bond sales amid default fallout

JoongAng Group Vice Chairman Hong Jeong-do leaves Seoul Bankruptcy Court in Seoul’s Seocho District, June 23, after attending hearings on rehabilitation filings by JoongAng Group affiliates. Joint Press Corps

Korea’s financial watchdog has launched inspections into Shinhan Securities and Kiwoom Securities over their distribution of corporate bonds issued by broadcaster JTBC, which is currently under court-led rehabilitation proceedings, industry sources said Thursday.

The Financial Supervisory Service (FSS) is reviewing whether the two brokerages continued underwriting and selling the bonds despite signs of JTBC’s deteriorating financial condition. It is also examining whether risks were properly disclosed and whether the products were recommended in line with investors’ risk profiles.

The move comes amid rising concerns over potential losses for retail investors following JTBC’s default.

The crisis at JoongAng Group escalated after JTBC failed to repay a 20.6 billion won ($13.3 million) asset-backed debt at maturity on June 12.

Four affiliates, including holding company JoongAng Holdings, subsequently applied for court-led rehabilitation at the Seoul Bankruptcy Court on June 14, with JTBC following suit a day later.

Retail investors have filed complaints with the FSS, alleging that securities firms did not adequately disclose the risks tied to the bonds.

Shinhan Securities issued 93 billion won of JTBC corporate bonds in February. At that time, JTBC carried a BBB rating, the lowest notch within investment-grade categories, prompting questions over whether the broker properly assessed the issuer’s financial condition before proceeding with the issuance.

Kiwoom Securities sold asset-backed short-term bonds (ABSTBs) to retail investors.

Some observers say Kiwoom’s exposure to misselling allegations may be limited, as the firm operates exclusively online without physical branches, which reduces the scope for in-person solicitation.

“At times, corporate bonds appeared to have been issued right up until shortly before default, with securities firms underwriting the debt and selling it to retail investors,” Financial Supervisory Service Gov. Lee Chan-jin said at a press briefing June 22. “We will examine how the bonds were issued and sold, and the circumstances surrounding the entire process.”