After SK Securities arranged a 150 billion won loan for O Chang-seok, the Oner of Mugunghwa Trust, using shares of an unlisted company as collateral and then struggled to recover the funds, a controversy has erupted over lax internal controls.
According to SK Securities on the 26th, the company arranged a 150 billion won loan for Chair O in June 2023 with Mugunghwa Trust shares as collateral and directly executed 86.9 billion won of that amount. It then structured the unlisted-share collateral loan and sold down about 44 billion won to institutional and retail clients. The collateral was the management-control equity (50% + 1 share) in Mugunghwa Trust held by Chair O.
However, as the real estate market froze rapidly, an event of default (EOD) occurred five months after the loan. Shares of unlisted companies were hard to dispose of in the market, making forced liquidation impossible and delaying debt recovery. As a result, some investors did not get their principal back, and SK Securities paid 13.2 billion won, or 30% of the affected customers' investment, as an advance payment. By the end of last year, the company had set aside provisions for more than 80% of the loan amount.
An aggressive loan structure is cited as the reason for the growing losses. The credit exposure to Chair O reached 23% of SK Securities' equity capital (578 billion won).
SK Securities originally restricted collateral loans backed by unlisted shares under its internal rules, but in 2019 it revised the rules to allow them "upon deliberation and resolution by the executive committee." Loans backed by Mugunghwa Trust shares began thereafter, and the scale expanded over several years. In 2021, it increased to 115 billion won, ostensibly for repayment of existing borrowing fund and interest payments.
The June 2023 loan at issue was a refinancing to repay existing funds. Despite the real estate market cooling sharply after the Legoland incident in 2022, the loan size expanded. SK Securities arranged 150 billion won including principal and interest, and passed on a substantial portion to outside investors.
Mugunghwa Trust failed to meet the net capital ratio (NCR) requirement in November of the same year and entered an EOD status, after which it received a management improvement order from the Financial Services Commission. A de facto default has continued even after the loan matured. SK Securities is seeking recovery through a sale of the management right, but no buyer has reportedly emerged yet.