It has been confirmed that IGIS Asset Management supported more than 50 billion won for the family company of a former chief executive of the firm and set aside more than half as allowance for doubtful accounts. In the financial investment industry, controversy is brewing over potential conflicts of interest and possible violations of the Financial Investment Services and Capital Markets Act.
According to the Financial Supervisory Service's electronic disclosure system on the 10th, IGIS Investment Partners, a subsidiary of IGIS Asset Management, provided 54.4 billion won in long-term loans to Ecogrid Solar, an investment company in the solar power generation business, as of the end of December last year. The spouse of former IGIS Asset Management CEO Cho Gap-joo, a person surnamed Lee, is the largest shareholder of Sky Value (equity 42.0%), and Ecogrid Solar is a subsidiary of a company (Ecogrid Solution) 100% owned by Sky Value. The spouse of the late former chair Kim Dae-young, the largest shareholder and founder of IGIS Asset Management, Son Hwa-ja, also holds 29.0% equity in Sky Value.
Former CEO Cho Gap-joo served as the head of IGIS Asset Management for seven years from 2014 to 2021. Cho currently remains an inside director at IGIS Asset Management. Adding the 9.9% held by the family company GF Investment, Cho holds about 12% equity in IGIS Asset Management.
IGIS Investment Partners is also setting aside allowance for doubtful accounts amounting to half of the funds lent to Ecogrid Solar. After setting aside about 5.8 billion won as allowance for doubtful accounts in 2023, it added about 27 billion won at the end of December last year. This amounts to about 60% of the total loans, suggesting IGIS Asset Management internally judged that there are difficulties in recovering the loans.
In the investment banking (IB) industry, some pointed out that a subsidiary of IGIS Asset Management, a financial investment business entity, extending credit to the largest shareholders and other related parties could potentially violate the Financial Investment Services and Capital Markets Act.
An IB industry official said, "The capital markets law strictly limits financial investment business entities from extending credit to their largest shareholders and related parties," adding, "IGIS Asset Management could have set up a special purpose company (SPC), kept it as an affiliate, and managed it, but allowing a company controlled by family members—who are related parties—to oversee it is hard to consider standard practice."
IGIS Asset Management said the structure was "rescue finance" aimed at reviving a deteriorated fund to prevent investor losses, and argued it was not a conflict of interest. A representative of IGIS Asset Management said, "If IGIS Investment Partners directly owned the SPC, the liabilities of the distressed business sites would be consolidated into IGIS Asset Management, potentially harming the financial statements, so we transferred it to a third party (Sky Value) capable of close communication during the workout process."
The person added, "Ecogrid Solar is normalizing the business after acquiring the distressed business site loan claims with the lending proceeds," and "As an SPC, Ecogrid Solar was used as a simple investment conduit, and given the nature of infrastructure investment, once the business is effectively normalized, the revenue is attributed to IGIS Investment Partners in the process of repaying the loans."
However, the IB industry said that even if it was to normalize a deteriorated fund, using a company controlled by related parties with a split equity structure was not normal.
A senior IB industry official said, "They claim there is no substantive benefit to the nominal equity, but after the business is normalized and the loans are repaid through, for example, the sale of power plants, wouldn't the remaining profits go to Sky Value, which is controlled by related parties?" adding, "Whether there is a legal violation needs to be examined, but it is undeniable that there is an ethical issue in a structure where losses go to the manager and profits go to the owner family."