This article was published on July 17, 2025, at 5 p.m. on the ChosunBiz RM Report site.
The Fair Trade Commission has begun to target the unlawful support structure of large business groups disguised as 'investment.' While it appears to be normal financial transactions on the surface, the reality is that they often entail taking on the debts of poorly performing affiliates. After imposing sanctions on CJ Group, the Fair Trade Commission plans to conduct thorough inspections of other large companies.
According to the government on the 18th, the Fair Trade Commission recently commissioned a study on the 'investigation of bypassing the debt guarantee restriction system.' This aims to examine the transaction structures and overall flow of funds among 1,900 affiliates belonging to 46 large business groups designated as mutual investment-limited business groups.
Transactions utilizing complex financial techniques such as total return swaps (TRS), special purpose companies (SPC), and capital supplementation agreements, which effectively provide guarantee effects for affiliates, are major inspection targets. Among these, TRS involves financial institutions lending money on behalf of affiliates, while the affiliates bear the profits and losses.
For example, if a low-credit affiliate (A) has difficulty borrowing money, a high-credit parent company (B) enters into a TRS contract with a financial institution. The financial institution purchases bonds issued by A and transfers the profits (such as interest) to B. However, the contract also stipulates that if a loss occurs, B is responsible for it. On the surface, it appears as an 'investment,' but in reality, B is taking on A's debt.
An SPC is a corporation established to isolate risk externally, while a capital supplementation agreement is a promise for the SPC's losses to be covered by the affiliate, which functions similarly to a debt guarantee.
The Fair Trade Commission plans to investigate the contract structure of transactions such as TRS, the counterparties, the establishment of SPCs, disclosure status, amounts, and terms of transactions, and also uncover past and present cases of bypassed support. In particular, if payment responsibilities to the SPC are explicitly stated, they will closely examine whether this actually differs from guarantees among affiliates.
In April, the Fair Trade Commission enacted a new notice regulating large business groups, stating that 'bypassing debt guarantees using derivatives is subject to regulation.' In particular, they viewed that the structure where losses are entirely borne by the affiliate while the financial institution only nominally invests in derivatives based on bonds issued by affiliate companies constitutes a guarantee.
The applicable targets include TRS, credit-linked notes (CLN), and credit default swaps (CDS), and they view similar arrangements involving SPCs established by financial institutions in the same way. Particularly, TRS may appear to be a 'contract that shares revenue,' but it effectively takes on affiliates' liabilities, as the nominal revenue recipient is the financial institution, while the group affiliates ultimately bear the profits and losses.
The Fair Trade Commission's thorough investigation was triggered by the CJ Group case. CJ entered into TRS contracts to support poorly performing affiliates and raised funds. The investigation began following a report by the People's Solidarity for Participatory Democracy in 2023, and the Fair Trade Commission imposed a penalty surcharge of 6.5 billion won, stating that CJ's transaction method amounted to unfair support.
According to the Fair Trade Commission, CJ established TRS contracts with financial institutions to enable two low-credit affiliates (CJ Construction and Simulline) to secure funding. Under this contract, the financial institution underwrote perpetual convertible bonds issued by the two affiliates, agreeing that if a loss occurred, CJ and CGV would bear the burden.
On the surface, the financial institution appears to be the 'investor,' but in reality, it is the high-credit affiliates that bear the risk of loss, effectively guaranteeing the debts of poorly performing affiliates. As a result, the two low-credit affiliates were able to raise 65 billion won at lower interest rates than the market, while CJ and CGV assumed actual credit risks.
The Fair Trade Commission has determined that despite the 'effect of high-quality companies supporting poorly performing ones,' it amounts to improper support among affiliates as it was disguised as financial investment on the surface.
A Fair Trade Commission official noted, 'While TRS was disguised as an investment through derivatives, it actually produced effects identical to that of a guarantee.' Notably, the fact that an internal contract was rejected due to concerns about loss and potential breaches of trust, as well as restrictions on exercising conversion rights during the TRS contract period, became the basis for the legal judgment.
This is not the first time the Fair Trade Commission has raised issues with the TRS structure. In 2018, the Fair Trade Commission investigated Hyosung Group for using SPCs and TRS transactions to support affiliate funding, and in 2022 the Supreme Court determined that the transaction effectively constituted a debt guarantee.
Based on the results of this service, the Fair Trade Commission plans to identify regulatory blind spots across all derivatives, including TRS, CLN, and CDS, and review amendments to notices and laws. This signals that methods previously considered ways to circumvent affiliate support actions are now all subject to investigation and sanctions. There is also a possibility of additional penalties following the findings of the investigation.
A lawyer specializing in fair trade stated, 'In the past, structures like TRS or SPC were thought to escape legal scrutiny, but now the Fair Trade Commission signals that they can be penalized based on who bears the loss.' He added that cases where groups have aided companies that were passed down to the second or third generation could come to light in the future.