[Invest&Law] "If Listed, Coupang; If Failed, Timf"

"Recover Investment in One Go Just by Going Public"
Expanding Aggressively Despite Severe Losses
Financial Authorities Also Responsible for Lax Supervision

[Image source=Yonhap News]

Following the unsettled payment crisis involving TMON and WEMAKEPRICE (TMEP), criticism has emerged regarding the financial authorities' inadequate management and supervision of e-commerce companies. While the e-commerce industry pursues a success strategy focused solely on "going public," despite severe deficits and aggressive expansion, the financial authorities have neglected the management and supervision of the financial soundness of these companies regulated under the Electronic Financial Transactions Act, making it difficult for them to evade responsibility for the current crisis.

According to the legal community on the 14th, TMEP's self-estimated debt reached approximately 1.64 trillion KRW as of the end of last month. On the 29th of last month, TMEP filed for corporate rehabilitation at the Seoul Bankruptcy Court, reporting total debts of 1.2 trillion KRW for TMON and 440 billion KRW for WEMAKEPRICE, respectively.

Legal experts analyze that e-commerce companies have solidified a success strategy of recklessly expanding their businesses with the sole aim of going public. A lawyer formerly with a global IT company said, "Enduring capital erosion and first expanding business scale, then exiting through an IPO is Amazon's success model and a prototype for e-commerce businesses," adding, "Coupang also endured years of losses before succeeding." He continued, "If successful, it's Coupang; if not, it's TMEP," but pointed out, "However, most e-commerce companies are regulated under the Electronic Financial Transactions Act, and the financial authorities responsible for managing and supervising them have largely neglected their duties in recent years."

In fact, TMEP is regulated as a "prepaid service provider" and an "electronic payment gateway (PG) operator" under the Electronic Financial Transactions Act. Since it issues and sells prepaid electronic payment instruments such as "TMON Cash" and mediates e-commerce transactions between sellers and buyers on its platform, it must meet registration requirements.

Article 31 of the Electronic Financial Transactions Act requires financial soundness standards as a condition for PG companies' licensing and registration. The Enforcement Decree of the same law demands that PG companies maintain a debt-to-equity ratio not exceeding 200% based on their capital, total investment, or basic assets. However, WEMAKEPRICE has been in a state of capital erosion and has exceeded this ratio for a considerable period. In 2019, WEMAKEPRICE's debt ratio was already 5,287%. Although TMON's debt ratio has reportedly fluctuated around 120% since 2019, it is difficult to ascertain exact figures as it has not submitted an audit report this year.

There are criticisms that financial authorities' management and supervision were lax for companies that only met financial soundness standards at the time of registration. The Financial Supervisory Service did not provide data for over ten days despite the National Assembly's request for TMEP's "management improvement performance."

On the 29th of last month, TMEP filed for corporate rehabilitation at the Seoul Bankruptcy Court and prepared a self-rescue plan. On the 2nd, TMEP received approval for the Autonomous Restructuring Support (ARS) program from the rehabilitation court and plans to repay creditors by selling the company. Ahead of the "rehabilitation procedure consultation meeting" on the 13th, TMEP reportedly submitted a rehabilitation plan to the court that includes receiving investments through restructuring funds or private equity funds, repaying a significant portion of creditors with these funds, restoring the company to a normal trajectory, and reselling it within three years.

The market views the possibility of selling TMEP as not insignificant, considering that it is a major domestic e-commerce company and already has an established e-commerce infrastructure. However, the business vision enabling TMEP's revival and the resignation of key executives responsible for management failures may become negotiation points. It is said that the acquisition price will likely not exceed 40% of the approximately 1 trillion KRW in debt TMEP must repay.

Reporter Lim Hyun-kyung, Legal Times