Daesang’s Cash Plunges 90% Ahead of $169 Million Antitrust Fine; $303 Million Drained by Debt Repayment and Investment — BigGo Finance

South Korea’s Daesang has seen its headquarters cash reserves shrink dramatically ahead of a 234.1 billion won (approximately $169.2 million) antitrust fine for starch and starch syrup price-fixing. More than 400 billion won in cash drained out in the second quarter alone, driven by repayment of existing borrowings, continued investment, and funds tied up in rising inventory and accounts receivable. With the company having proactively reduced debt to lower its borrowing burden before the large fine payment, attention now turns to how it will secure funding through core business cash generation and additional financing.

According to the Financial Supervisory Service’s electronic disclosure system on August 24, Daesang’s standalone cash and cash equivalents fell 90.4% from 443.9 billion won (approximately $320.8 million) at the end of the first quarter to 42.6 billion won (approximately $30.8 million) at the end of the second quarter. The decline was limited to 21.5 billion won from the end of last year’s 465.4 billion won through the first quarter, but the second quarter saw a 401.2 billion won drop in just three months.

The primary reason was heavy cash outlays for debt repayment. Net cash outflow from financing activities reached 280 billion won in the second quarter. Daesang spent 518.5 billion won on debt repayment alone, including 396.1 billion won in short-term borrowings, 112.8 billion won in long-term borrowings, and 9.6 billion won in matured long-term borrowings. The company raised 275.7 billion won in new short-term borrowings during the same period, but repayments far exceeded new borrowing. It also paid 30.6 billion won in dividends.

For the first half as a whole, debt and corporate bond repayments totaled 812.1 billion won. In contrast, funds raised through new borrowings and corporate bond issuance amounted to 630.4 billion won—181.7 billion won less than repayments. As a result, the combined balance of financial institution borrowings and corporate bonds fell by 180.2 billion won from approximately 1.03 trillion won (approximately $745.6 million) at the end of last year to 851.6 billion won at the end of June. Notably, non-current financial institution borrowings decreased from 129.5 billion won at the end of last year to zero by end-June.

Investment in the business was also substantial. In the first half, Daesang invested 54.8 billion won in subsidiaries including the acquisition of Amino GmbH, and 67.5 billion won in tangible assets such as plants and equipment. Funds were also tied up in inventory (78.2 billion won increase) and accounts receivable (64.5 billion won increase). As a result, despite posting a net profit of 50 billion won in the first half, operating activities actually saw a net cash outflow of 50 billion won.

Funding the Fine Is the Key Challenge

The problem is that the second-quarter cash plunge is unrelated to the fine payment. The Korea Fair Trade Commission (KFTC) imposed a total of 747.6 billion won in fines on Daesang and three other companies in July for starch and starch syrup price-fixing, with Daesang receiving the largest share at 234.14 billion won. Daesang reclassified the amount from provisions to accounts payable, but no actual payment had been made as of end-June.

In other words, the 42.6 billion won in remaining cash at the end of the second quarter is the balance before the fine payment. Even after significantly reducing cash, the company still faces an additional 234.1 billion won burden.

The scale gap is too large to cover with current holdings alone. Daesang’s standalone cash of 42.6 billion won plus short-term financial instruments of 29.3 billion won totals just 71.9 billion won at end-June—less than one-third of the fine. Of this, 13.5 billion won in short-term financial instruments is pledged as collateral for borrowings.

However, the reduced borrowing burden in the first half could help future fundraising. Daesang reduced its borrowings and corporate bond balance by 180 billion won and repaid 220 billion won in corporate bonds that matured in January this year. At the same time, it issued 295 billion won in corporate bonds maturing in 2029 and 2031, extending maturities to the long term. If cash generated from core operations alone proves insufficient to cover the fine, the company has room to return to bank borrowing or corporate bond issuance.

Debt obligations still remain. Next January, 180 billion won in corporate bonds come due. Combined with the fine, the total exceeds 400 billion won. Corporate bonds can be refinanced through new issuance, but if the fine payment coincides, the borrowings reduced in the first half could rise again. Ultimately, how much cash the company secures from core operations and how it raises the shortfall will determine its future financial structure.

A Daesang official said, “Cash and cash equivalents decreased due to debt repayment for financial structure improvement.”

Stricter Regulation on Credit Extension to Controlling Shareholders in Mutual Aid Industry

Meanwhile, the practice of mutual aid companies excessively lending company funds to controlling shareholders—the so-called “pocket money” practice—is being reined in. Credit extension limits to controlling shareholders will be capped at 50% of capital, and violations will allow the Financial Supervisory Service (FSS) to participate in investigations. However, critics note that the revision omits regulations on how consumer prepayments can be invested, calling it a “half-measure regulation.”

According to the KFTC and other sources on August 23, the revised Installment Transactions Act containing these provisions passed the National Assembly plenary session on August 20.

The core of the revision caps the total credit extension—including loans and payment guarantees—that mutual aid companies, as prepaid installment transaction operators, can provide to controlling shareholders at 50% of capital.

Previously, there was no separate legal limit on credit extension to controlling shareholders of mutual aid companies, drawing criticism that company funds could flow excessively to controlling shareholders or CEOs. The concern was particularly acute because the mutual aid industry operates on a structure where consumers pay money over a long period before receiving services, meaning poor fund management could ultimately lead to consumer harm.

Once the revised law takes effect, legal limits on such credit extension will be established. Extending credit to controlling shareholders exceeding 50% of capital could result in imprisonment of up to three years or a fine of up to 100 million won (approximately $72,000).

Even for transactions within the limit, internal control procedures will apply to credit extension above a certain threshold. Approval must come from all registered executives or a board resolution, with post-reporting to the KFTC or public disclosure on the internet required. Violations will incur administrative fines of up to 30 million won (approximately $22,000). Specific monetary thresholds will be set in future enforcement decrees.

A notable aspect of this revision is the establishment of a legal basis for the FSS to be directly involved in the mutual aid industry.

Mutual aid companies receive prepayments from customers over extended periods and manage these funds, but are legally classified as “prepaid installment transaction operators” rather than financial companies. As a result, they have been outside the direct supervisory scope of financial authorities. Going forward, the KFTC and FSS can form a joint investigation team when examining violations of credit extension limits to controlling shareholders.

The KFTC’s management and supervisory authority will also be strengthened. The revised law codifies the legal basis for the KFTC to investigate the actual conditions of prepaid installment transaction operators.

A legal basis has also been newly established for a “prepaid installment transaction integrated information system” allowing consumers to directly check their mutual aid contracts and payment status. Once the system is built, consumers will be able to verify contract dates, prepayment details, consumer damage compensation procedures, and operator-related information.

Management of mutual aid associations that pay consumer damage compensation in preparation for mutual aid company closures will also be strengthened. Establishment approval can be revoked if certain conditions are met, such as capital contributions falling below 20 billion won (approximately $14.5 million) or failing to comply with corrective orders three or more times in the past five years.

However, blind spots remain even in this revision. While it curbs lending company funds to controlling shareholders, it does not include regulations on what assets mutual aid companies can invest consumer prepayments in.

Under the current system, there are no separate operational regulations directly restricting mutual aid companies from investing prepayments in high-risk assets such as cryptocurrencies. Mechanisms to control risks at the fund management stage remain insufficient.

The revised law will take effect one year after promulgation following government transfer and Cabinet approval. The KFTC is expected to promptly begin revising subordinate regulations once the revised law is promulgated.