Unfair Support for BS Group Owner’s Second Generation Family Company... KFTC Begins Deliberation

The Fair Trade Commission has initiated disciplinary procedures against BS Industry, a subsidiary of BS Group (formerly Bosung Group), for allegedly providing undue benefits by selling its stakes in two project finance vehicles (PFVs) to Korea D&I, a company owned by the second-generation owner, at a price lower than fair market value.

On September 30, the Secretariat of the Fair Trade Commission announced that it had submitted an examination report to the Commission and delivered it to the respondents. The report details the alleged violations of Article 45 of the Monopoly Regulation and Fair Trade Act, the facts of the alleged conduct by BS Industry and Korea D&I, the illegality of such actions, and recommendations on measures.

As a result, deliberation procedures by the Fair Trade Commission have commenced, and a final decision on sanctions will be made during a plenary session in the future.

According to the Fair Trade Commission, BS Industry established two PFVs to execute public housing development projects for the Busan Eco Delta City Block 21 and Uijeongbu Gosan C1, C3 Blocks. Despite expecting significant profits from these projects, BS Industry sold its stakes in the two PFVs to Korea D&I, which is controlled by the second-generation owner of the group, at prices below par value.

As a result, Korea D&I acquired the stakes in the two PFVs within just four months of its establishment and subsequently earned dividend income totaling approximately 37 billion won.

The amount considered as unfair support in this case, calculated as the difference between the fair market price of the two PFVs' shares and the actual transaction price between the respondent companies, amounts to about 7 billion won. Korea D&I is a company controlled by the family of the second-generation owner of BS Group.

The examiner has determined that this conduct constitutes a very serious violation of Article 45, Paragraph 1, Item 9 of the Monopoly Regulation and Fair Trade Act, and has recommended a corrective order as well as the imposition of a surcharge.

The final amount of the surcharge and related measures will be confirmed after deliberation by the Fair Trade Commission's plenary session. The Commission stated, "We are fully guaranteeing the respondents’ right to defense through procedures such as submission of written opinions, and a final decision will be made following plenary deliberation."

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