[Wealth Succession] Yushin② Owner's Asset Increase Through Company Support... Performing Guarantee Role

Owner-purchased Yushin Building mortgaged
No public notice... Owner family profits handsomely

Yushin, a civil engineering company, has taken on the debt guarantees of the owner family company along with acquiring the Yushin Building owned by Chairman Jeon Gyeong-su and his family. When Chairman Jeon raised a large-scale loan through the family company ‘Cheongshin Leisure,’ the Yushin Building was provided as collateral, which Yushin has now received as is.

As a result, Chairman Jeon’s side maintained control over Cheongshin Leisure and the Yushin Building while securing 50 billion KRW in cash and shedding a debt burden of about 20 billion KRW. On the other hand, Yushin had to secure large-scale loans to pay for the building purchase and also became liable for the debt guarantees of the owner family company.

According to the Financial Supervisory Service’s electronic disclosure system on the 6th, Chairman Jeon Gyeong-su established a corporation called ‘Cheongshin Leisure’ in June 2021 by investing 3 billion KRW together with his family and Yushin. The shareholding structure is 40% for Chairman Jeon, 20% for his younger brother Jeon Woo-kyung, 5% for his son Jeon Jong-ho, Vice President of Yushin, and 35% for Yushin.

Considering that Yushin and Chairman Jeon’s family hold more than 50% of the shares, Cheongshin Leisure is effectively Chairman Jeon’s family company. The CEO of Cheongshin Leisure is also Vice President Jeon Jong-ho.

In July 2021, Cheongshin Leisure acquired a 9-hole public golf course called ‘Hanmir Daedeok CC’ located in Techno Valley, Yuseong-gu, Daejeon, along with a practice range, sports center, and multipurpose gymnasium, a complex sports facility. The acquisition, including land, buildings, and golf course, cost 82 billion KRW.

Cheongshin Leisure raised acquisition funds with 300 million KRW in capital and 79 billion KRW in loans. The loans were borrowed from Hana Bank (63 billion KRW) and Yushin (16 billion KRW). The interest rates were 6.47% from Hana Bank and 2.8% from Yushin.

Cheongshin Leisure borrowed money from Yushin at an interest rate lower than the tax law’s standard interest rate of 4.6% for related parties. Also, no collateral was provided for the loan from Yushin. However, for the loan from Hana Bank, all of Cheongshin Leisure’s real estate and the Yushin Building owned by Chairman Jeon and his family were provided as collateral.

A Yushin official stated, “The interest rate was set after review by a tax firm using a weighted average method of borrowing interest rates.” The reason for not taking collateral was not disclosed.

The mortgage registration amount provided by the Yushin Building as collateral for Cheongshin Leisure’s loan to Hana Bank was 33.1 billion KRW. Earlier this year, Yushin purchased 60% of the Yushin Building shares from Chairman Jeon and others, thus Yushin became liable for a guarantee of approximately 19.86 billion KRW. If Cheongshin Leisure fails to repay the loan, Yushin would have to repay the guaranteed amount or transfer the shares of the Yushin Building.

Ultimately, Chairman Jeon’s family was able to own a golf course worth about 80 billion KRW with almost no risk thanks to Yushin’s credit support. In the process, they also secured 50 billion KRW in cash from the building share sale proceeds.

However, Yushin did not disclose the fact that it provided collateral to Cheongshin Leisure when it purchased the Yushin Building in March. Because of this, Yushin received a deferred designation as a non-compliant disclosure corporation. Although 6 penalty points were imposed, the designation was deferred on the condition that Yushin would not be designated as a non-compliant disclosure corporation for six months.

Regarding this, a Yushin official said, “We did not know this was a disclosure item,” and added, “Since we recovered the 16 billion KRW lent to Cheongshin Leisure when acquiring the Yushin Building, there is no significant change from the existing credit support.”

He also said, “Chairman Jeon provided a payment guarantee for the 29 billion KRW borrowed independently by Yushin, so Yushin’s provision of collateral to Cheongshin Leisure is not problematic.”

However, Yushin did not disclose in its first half report that the major shareholders, including Chairman Jeon, provided payment guarantees for Yushin. The company stated that it was not obligated to include this information in the business report and therefore did not disclose it.