Over more than 17 years, HDC provided funds in the 30 billion KRW range to its affiliate IPARK Mall free of charge under the guise of a ‘disguised’ lease agreement, and it has now been hit with a fine in the 17 billion KRW range and will face a prosecutorial investigation. HDC said, “It was a legitimate act to remedy harm suffered by retail unit buyers,” and signaled an administrative lawsuit.

The Korea Fair Trade Commission announced on the 8th that it had issued a corrective order and imposed a 17.13 billion KRW surcharge over HDC, part of the HDC business group subject to restrictions on cross-shareholding, disguising the transaction as a lease and effectively providing interest-free funding to its affiliate HDC IPARK Mall (unfair support). The surcharges were 5.765 billion KRW on HDC and 11.368 billion KRW on HDC IPARK Mall, respectively. The Korea Fair Trade Commission filed a complaint with prosecutors against the HDC corporation.

According to the Korea Fair Trade Commission’s investigation, IPARK Mall, an HDC affiliate operating a private-invested station complex shopping mall in Yongsan, fell into a state of complete capital impairment in 2005 due to a deteriorating leasing environment, whereupon HDC stepped in as a ‘relief pitcher’.

In 2006, HDC entered into a lease agreement for the IPARK Mall retail spaces and paid 36 billion KRW to IPARK Mall as a deposit. Under a separate contract, IPARK Mall would operate those retail spaces and pay HDC the use proceeds. Those proceeds were, in effect, interest on the 36 billion KRW deposit.

From March 2006 to June 2020, IPARK Mall paid HDC use proceeds averaging 105 million KRW per year. On an interest-rate basis, that amounts to an annual average of about 0.3%. In substance, HDC supported IPARK Mall at an ultra-low rate. Previously, in 2018, the National Tax Service also viewed HDC’s arrangement as an indirect loan and issued a tax assessment.

The Korea Fair Trade Commission determined that over more than 17 years, IPARK Mall effectively used funds in the 33.3 to 36 billion KRW range at virtually no cost. The interest expense saved by IPARK Mall was estimated at 45.8 billion KRW.

IPARK Mall returned to the black in 2014. The Korea Fair Trade Commission found that, due to the unfair support, the formerly distressed affiliate avoided the risk of market exit and strengthened its position as a leading operator.

However, the Korea Fair Trade Commission did not find any indication that group owner Chairman Chung Mong-gyu was directly involved in the unfair support, and therefore did not file a personal complaint against him.

HDC issued a statement the same day saying, “We entered into the lease agreement at the request of retail unit buyers who were facing a survival crisis due to large vacancies at the beginning of opening,” adding, “It is difficult to understand a decision that actions taken to remedy damages are deemed unfair. We will demonstrate through legal procedures that the actions were justified.”