HDC fined $11.61 mil. over unfair support for ailing affiliate

Lee Soon-mi, a standing member of the Fair Trade Commission, briefs reporters on fines imposed on HDC for unfair activities supporting an ailing affiliate, at the Fair Trade Commission in Sejong, Wednesday. Yonhap

Korea's antitrust regulator said Wednesday it has imposed a 17.13 billion-won ($11.61 million) fine on major construction firm HDC Holdings for improperly supporting an ailing affiliate facing a management crisis.

The Fair Trade Commission (FTC) said it has also ordered corrective measures, noting the company had effectively provided large-scale funds to its affiliate, HDC I'Park Mall, free of charge. The FTC said it plans to refer HDC to prosecutors.

According to the watchdog, HDC I'Park Mall, which operates a shopping complex, fell into a severe management crisis in 2006 due to low tenant occupancy rates.

HDC allegedly disguised a financial transaction as a lease agreement, under which it delegated store operation and management rights to HDC I'Park Mall while receiving fees and usage profits.

The FTC determined that although the transactions were structured as a lease and a management delegation contract, they were, in substance, equivalent to providing a low-interest loan.

HDC I'Park Mall borrowed between 33.3 billion won and 36 billion won for more than 17 years but paid only 4.7 billion won in interest to HDC.

The FTC ruled that the affiliate saved 45.8 billion won in interest costs.

In response, HDC denied the allegations, saying it had entered into the lease and management delegation agreements as a measure to address vacancies and promote mutual growth.

"It is not true that we disguised a loan as a lease transaction to provide funds in the form of a deposit," the company said, noting that it will seek legal procedures.