KPX Affiliate Jinyang Industry Funnels Raw Material Export Rights to Owner Family's Company
Fair Trade Commission "Sanctions on Mid-sized Company's Illegal Activities"
[Asia Economy Reporter Moon Chae-seok] KPX Group’s Jinyang Industry was caught by the Fair Trade Commission (FTC) for unfairly supporting CK Enterprise, led by Vice Chairman Yang Jun-young, the son of Chairman Yang Gyumo.
Jinyang Industry was issued a corrective order and fined 1.362 billion KRW, while CK Enterprise was fined 273 million KRW.
The FTC praised itself, stating, "Following the SPC and Changshin cases, we have expanded the scope of legal violation monitoring from large business groups to medium-sized business groups, demonstrating our commitment to strict law enforcement and establishing a sound competitive order regardless of company size."
Previously, in July last year, the FTC imposed a corrective order and a fine of 64.7 billion KRW on SPC Group for unfairly supporting a specific affiliate. In October of the same year, Changshin INC was fined 38.5 billion KRW and given a corrective order for unfairly supporting Seohung, a wholesale company where Chairman Jung Hwan-il’s children are the largest shareholders.
The core issue is that Jinyang Industry, which manufactures sponges, unfairly supported CK Enterprise, the chairman’s son’s company, which had never exported raw materials, with an amount of 3.6 billion KRW.
In August 2015, Jinyang Industry transferred PPG export business rights worth 3.677 billion KRW to CK Enterprise free of charge. PPG is a key raw material for sponges.
Specifically, from April 2012, Jinyang Industry began transferring quantities of PPG, a polyurethane foam raw material sold to the Vietnamese company Vinapfoam, to CK Enterprise. From August 2015, all quantities were transferred.
The transfer process was led by executives who worked at both Jinyang Industry and CK Enterprise.
The FTC judged that thanks to Jinyang Industry’s support, CK Enterprise, the chairman’s son’s company, established a business foundation and strengthened its financial stability.
Until 2011, the company mainly earned money through real estate leasing, with sales of 327 million KRW. From 2012, when it started receiving PPG export quantities, sales were about 12 to 22 times higher than real estate leasing.
Average annual operating profit also increased more than 18 times, from about 77 million KRW during 2007?2011 to 1.406 billion KRW during 2012?2019.
The FTC determined this to be a clear case of unfair support. CK Enterprise entered the sponge raw material export market without any foundation. This act lowered the entry barriers for export (agency) business but blocked potential competitors from entering the market.
Furthermore, the support was seen as advantageous for KPX Group’s management succession. CK Enterprise used the profits earned from the transferred PPG export quantities to acquire shares in the holding company KPX Holdings.
The FTC judged that this enabled the chairman’s eldest son of Jinyang Industry to prepare a foothold to succeed KPX’s management rights.
Min Hye-young, head of the FTC’s Disclosure Inspection Division, stated, "Going forward, the FTC will continue more active monitoring activities not only for large business groups but also for medium-sized business groups abusing economic power in the market regarding unfair support activities."
She also explained the significance of regulating unfair transfers of intangible assets, which are difficult to quantify in terms of support amount. This is the second case regulating unfair support of intangible assets following the SPC case, but the first limited to goodwill transactions.
Min said, "Due to the nature of intangible assets, whose value is not easy to evaluate, it was also difficult to calculate the support amount. It is meaningful that we identified and corrected the unfairness of free (low-price) transfers of intangible assets."
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