The court receivership application by Tongyang Networks on October 1, in the wake of financial debacle of other four Tongyang Group companies, is considered a "mystery" by many financial market watchers. That's because the IT service and trading unit was one of the best-run companies in the group. As late as the end of June, its cashable assets at the time were as much as 57.8 billion won, according to the half-year audit report. In addition, its real estate investment was 105.6 billion won, including a golf course that it had acquired from Tongyang Leisure in December last year at 79.3 billion won.
But a high-ranking executive of Tongyang Networks said of the reasons for court receivership application, "It was because we were unable to pay back discount notes worth several hundred million won." What has happened for the past three months that made 58 billion won disappear and forced the company to go to a humiliating corporate workout program for a few hundred million won?
Tongyang Networks had been a "cash cow" among the group companies. Its largest shareholder was Hyun Jae-hyun, the current chairman of Tongyang Group, who holds a 29.73-percent stake. Lee Gwan-hee, chairperson of the Seonam Foundation and the widow of Tongyang Group founder Lee Yang-gu, is so close to Mr. Hyun that she lent 159,000 shares of Orion Group to help the struggling Tongyang Group. Tongyang Networks sold the shares at 159.6 billion won. Financial analysts figured the company must hold some of the cash after buying up the golf course.
Its financial standing is also far from bad. Even though it took an operating loss of 2.9 billion won in the first half of the year, its sales revenue almost doubled to 319.2 billion won in 2012 from 159.9 billion won in 2011. Given all these, financial market watchers say the company would have a sufficient amount of cash to pay for debts. The real reason may have to do with the fact that its court receivership application is a ruse to put Lee Gwan-hee, the Seonam Foundation chairwoman, to the position of No. 1 shareholder of Tongyang Networks through a debt-for-equity swap.