The liquidity crisis at JTBC's parent company, JoongAng Group, illustrates the imbalanced structure of corporate finance in South Korea. While banks that provide funds to the same company secure collateral, investors holding unsecured corporate bonds face significantly different risks. Companies are increasingly relying on bank loans rather than the corporate bond market. Critics argue that while the capital market's funding base weakens, the bank-centered financial structure is becoming more entrenched.
As of June 22, estimates from Daishin Securities indicate that JoongAng Group's borrowings amount to 27.4 trillion won. Among these, bank exposure is the largest at 8.007 trillion won, with Hana Bank, its primary lender, holding 3.07 trillion won in loans.
However, over 90% of bank loans are secured by collateral such as real estate, suggesting that the ultimate loss may be limited. In the event of corporate restructuring or debt adjustment, creditors with secured claims will be prioritized for repayment.
In contrast, the situation for corporate bond investors is more precarious. Most domestic corporate bonds are issued without collateral, meaning individual investors participate without any security or priority repayment rights. If a company becomes insolvent, these investors will be repaid after secured creditors, significantly increasing their risk of loss.
This structural issue was highlighted earlier this year during the Homeplus incident. Homeplus sold short-term bonds through securities firms and subsequently filed for corporate rehabilitation before the bonds matured, leaving individual investors unable to recover their investments. Although these products were marketed as safe assets, they actually carried the full credit risk of the company, sparking controversy.
Lee Young-kyung, a senior researcher at the Korea Financial Research Institute, stated, "The protection of bondholders, as seen in past incidents like the Dongyang Group crisis and the recent Homeplus and JTBC situations, is an urgent issue that cannot be postponed. With the rapid increase in public participation in the capital market, it is essential to ensure robust investor protection."
The contraction of the corporate bond market is also deepening. As companies turn to bank loans instead of issuing bonds, the bank-centered corporate finance structure is becoming more entrenched.
As of the end of May, the balance of corporate loans from deposit banks reached 1,408.3 trillion won, an increase of 10.6 trillion won from the previous month. This marks the second consecutive month of over 10 trillion won growth, following an increase of 10.7 trillion won in April. This trend is attributed to companies shifting to loans as bond issuance becomes more challenging.
According to the Financial Supervisory Service, the issuance of general corporate bonds as of the end of April was 4.174 trillion won, a 12.7% decrease from the previous month’s 4.781 trillion won. In contrast, repayments reached 7.652 trillion won, resulting in a net repayment of 3.478 trillion won. This trend of net repayments has continued since March, when it was 449 billion won.
The problem lies in the fact that while corporate funding demand remains high, the contraction of the corporate bond market is worsening the funding conditions for companies with lower credit ratings. A financial industry official warned, "If corporate funding becomes excessively concentrated in the banking sector rather than the capital market, companies' financial situations could be significantly affected by economic fluctuations, posing a burden on the stability of the financial system."
* This article has been translated by AI.
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