IGIS Asset Management was found to have provided more than 50 billion won to a family company of the firm's former CEO and set aside more than half of it as allowance for bad debts. In the financial investment industry, controversy is growing over a potential conflict 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 wholly owned subsidiary of IGIS Asset Management, provided 54.4 billion won in long-term loans to Ecogrid Solar, a solar power generation investment company, as of the end of Dec. last year. Ecogrid Solar is a wholly owned subsidiary of a company (Ecogrid Solution) in which Sky Value holds 100% equity. The spouse of former IGIS Asset Management CEO Cho Gap-joo, a person surnamed Lee, is the largest shareholder of Sky Value (42.0% equity). Son Hwa-ja, the spouse of the late former chair Kim Dae-young, the largest shareholder and founder of IGIS Asset Management, also holds 29.0% equity in Sky Value.
Former CEO Cho Gap-joo served as CEO of IGIS Asset Management for seven years from 2014 to 2021. Cho currently remains an inside director at IGIS Asset Management. Including the 9.9% held by family company GF Investment, Cho holds about 12% equity in IGIS Asset Management.
IGIS Investment Partners is also setting aside allowance for bad debts equal to about half of the funds lent to Ecogrid Solar. After setting aside about 5.8 billion won as allowance for bad debts in 2023, it added about 27.0 billion won by the end of Dec. last year. That amounts to about 50% of the total loan, suggesting IGIS Asset Management internally judged there were difficulties in recovering the loan.
In the investment banking (IB) industry, some pointed out that a subsidiary of IGIS Asset Management, a financial investment business entity, extending credit to a major shareholder and other related parties could constitute a violation of the Financial Investment Services and Capital Markets Act.
An IB industry official said, "The capital markets law strictly limits financial investment businesses from extending credit to major shareholders and their 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 whose major shareholder is a related family member to control it is hard to see as standard practice."
IGIS Asset Management said the structure was "rescue finance" intended to revive a distressed fund and prevent investor losses, and denied any conflict of interest. An IGIS Asset Management official said, "If IGIS Investment Partners directly owned the SPC, liabilities from the distressed business sites would be consolidated into IGIS Asset Management and could negatively affect the financial statements, so we transferred it to a third party (Sky Value) capable of close communication during the turnaround process."
The official added, "Ecogrid Solar acquired the distressed business site loan claims with the lending and is normalizing the business," and "As an SPC, Ecogrid Solar was used simply as an investment conduit, and given the nature of infrastructure investment, once the business is substantively normalized, the revenue will revert to IGIS Investment Partners in the course of repaying the loan."
However, the IB industry said that even if the aim was to normalize a distressed 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 practical benefit from the nominal equity, but after the business normalizes, wouldn't any remaining profit after repaying the lending through, for example, selling the power plant, 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 there is an ethical problem in a structure where losses go to the asset manager and profits go to the owner family."