FTC to sue Kumho boss over unfair bid to tighten group control

By Nam Hyun-woo

The Fair Trade Commission (FTC) said Thursday it imposed a combined 32 billion won ($26.98 million) in fines on Kumho Asiana Group companies for unfairly supporting their affiliate Kumho Bus Lines, in which the group's owner family has a majority stake.

The antitrust agency also filed complaints with the prosecution against former Chairman and owner Park Sam-koo and two group executives for “abetting” group units to join the scheme.

According to the FTC, Kumho Asiana Group has been attempting to reorganize its ownership structure since 2015 to have Kumho Bus Lines play the role of holding firm to tighten the Park family's control of the group.

The Park family has been the controlling stakeholder of Kumho Bus Lines with a combined 41.1 percent stake in 2016. As of last year, the owner family's combined stake in the company rose to 50.9 percent, with former Chairman Park having 27.8 percent, followed by his son Se-chang with 18.8 percent.

To finance the restructuring plan, the group used Asiana Airlines' exclusive in-flight meal service deal. The group designed a package deal, in which the company awarded with the meal service deal has to invest in Kumho Bus Lines by purchasing bonds with warrants (BW). BWs give the bondholder the right to buy a certain number of shares at a fixed price after a predetermined time.

As Switzerland's Gategroup accepted this deal, Asiana Airlines awarded a 30-year in-flight meal service right to Gategroup in December 2016, and Gategroup purchased Kumho Bus Lines BW worth 160 billion won in 2017 at a zero-percent interest rate.

The FTC said the “normal interest rates” for BW then was over 3.7 percent, but Kumho Bus Lines' BW had no interest rate at all, thus allowing the company to enjoy unfair profits worth 16.2 billion won.

The antitrust agency also said Asiana Airlines had a chance to sign an in-flight meal service deal with other companies on more favorable terms, but decided to partner with Gategroup as it accepted the BW purchase.

“If the bondholder can profit by exercising the right to purchase shares in the issuing company, there is a chance of a issuing a zero-percent-rate BW, but in this case, there was no chance for Gategroup to exercise its rights, because Kumho Bus Lines' shares at the time were cheaper than the BW price of 150,000 won,” an FTC official said.

Along with the BW transaction, the FTC said the group abetted nine Kumho Asiana companies to unfairly support Kumho Bus Lines by extending low-interest loans from August 2016 to April 2017.

The companies, including Kumho Engineering & Construction (E&C), Asiana Airlines, Air Busan and Air Seoul, loaned a total of 130.6 billion won to Kumho Bus Lines at rates between 1.5 percent and 4.5 percent, which were far lower than the normal rates of 3.49 percent to 5.75 percent at the time.

Through these processes, the FTC said Kumho Bus Lines has successfully financed its acquisitions of Kumho E&C and a slew of other affiliates, and allowed the owner family to tighten their grip on the group.

“If a business group unconditionally supports a unit just because the owner family has a majority stake in it, this can cause a group-wide collapse,” the FTC said. “Kumho Asiana exploited every possible asset to support Kumho Bus Lines.”

The FTC fined Kumho E&C 14.89 billion won, as Kumho E&C played a critical role in the violations as the group's main unit. Kumho Bus Lines followed with an 8.51 billion won fine, while Asiana Airlines was fined 8.18 billion.

Former Chairman Park stepped down from his post in May last year, taking responsibility for Asiana's financial difficulties. However, the FTC still recognizes him as the chief of Kumho Asiana Group given his shares and managerial control of the group.

Kumho Group said in a statement that it regrets the FTC's punishments, claiming the agency is excessively regulating the group. It said the prosecution has already closed the investigation on a separate litigation from a civic group against Asiana's in-flight service deal.

“The BW investment into Kumho Bus Lines was taken as part of the strategic partnership (between Kumho Asiana Group and Gategroup), which took the growth potential of the company into account,” Kumho Asiana Group said in a statement.

“Kumho Asiana Group companies will respond to FTC decisions after receiving official documents.”