Underwriter Accused of Misleading Investors in JTBC Bond Default Case

A group representing victims of JTBC's bond default has accused Shinhan Investment Corp., the lead underwriter, of providing misleading assurances about repayment despite the media company's precarious financial state. The victims' legal team alleges that Shinhan Investment downplayed JTBC's severe capital impairment and conducted a superficial due diligence process before the bond issuance.

The joint legal representatives for bond investors stated on November 13 that they submitted an opinion to the Financial Supervisory Service detailing the damages incurred by 250 victims, amounting to approximately 32.52 billion won. They claim that JTBC was in a near-complete capital impairment state when it issued corporate bonds, with its capital impairment rate projected to reach 96.7% by the end of 2025. JTBC narrowly avoided a complete capital impairment on its financial statements by issuing 40 billion won in perpetual capital securities just before the fiscal year closed.

The legal team highlighted that Shinhan Investment, despite noting risks such as capital impairment, credit rating downgrades, accumulated losses, and declining cash assets in its internal due diligence report, concluded in the investor relations materials that "principal and interest repayment would be smooth." JTBC defaulted on 93 billion won in corporate bonds approximately four months after their issuance in February, leading to its application for receivership.

“

Principal and interest repayment would be smooth.

Furthermore, the legal representatives questioned the thoroughness of Shinhan Investment's due diligence, noting that the on-site inspection was replaced by a one-day online meeting. The entire process, from signing the lead underwriting agreement to the payment of bond issuance funds, was reportedly completed in about three weeks. The legal team also urged an investigation into whether proper investor protection procedures were followed by Kiwoom Securities in selling JTBC's asset-backed commercial paper directly to individual investors via its mobile trading system.

The Financial Supervisory Service has initiated on-site inspections of Shinhan Investment Corp. and Kiwoom Securities, which began on November 2. An inspection of Hanyang Securities, involved in the corporate bond issuance and underwriting, commenced on November 8. The legal team has requested the immediate preservation of crucial data, including emails, messenger records, allocation and trading ledgers, and consultation recordings.

“

We urge that the scope of inspection be expanded to include securities firms that mediate over-the-counter trading, discretionary investment firms, and credit rating agencies.