HDC has been hit with a hefty fine and referred to prosecutors by the Fair Trade Commission (FTC) for allegedly providing unfair support to a struggling affiliate.
The FTC announced Wednesday that it has ordered corrective measures and imposed a 17.13 billion won fine on HDC after finding the company had effectively provided interest-free financial support to its affiliate HDC Ipark Mall.
According to the FTC, when Ipark Mall faced a severe management crisis in 2006, HDC entered into a lease agreement and provided 36 billion won as a security deposit. The commission determined this arrangement was effectively an ultra-low interest loan. The usage fees Ipark Mall paid to HDC from March 2006 to June 2020 averaged just 105 million won annually, equivalent to an average interest rate of only 0.3 percent per year. The National Tax Service also concluded the transaction was a disguised loan and imposed taxes on it in 2018.
HDC subsequently revised the deposit to 33.3 billion won in July 2020 and converted the contract to a formal lending agreement at an annual interest rate of 2.55 percent. The FTC determined this rate was still lower than what Ipark Mall could have obtained independently from the market, constituting unfair support.
According to the FTC, Ipark Mall saved approximately 45.8 billion won in interest costs over roughly 17 years. Thanks to HDC's support, the affiliate posted its first operating profit in 2011 after years of operating losses and turned profitable in 2014.
Through its plenary session, the FTC decided to impose fines of 5.76 billion won on HDC and 11.368 billion won on Ipark Mall. The amounts reflect a 10 percent reduction in recognition of the companies' cooperation with the investigation. The commission also issued corrective orders and decided to refer HDC as a corporation to prosecutors.
HDC stated that it "entered into the lease agreement on the same terms as those for commercial unit buyers who were struggling with vacancies at the time, for their survival and mutual benefit," adding that it would seek to clear the allegations through legal proceedings.
