Tongyang Group

Tongyang Group, also spelled Tong Yang Group, was a South Korean conglomerate established in 1957 by Lee Yang-gu. Its origins lay in cement manufacturing, but the group later developed into a diversified business organization with interests in construction-related activities, financial services, information technology, energy, textiles, leisure, and professional sports. The group’s corporate history reflects the expansionary model of many South Korean chaebol: an industrial base was used to enter additional sectors, including securities and insurance, while affiliated companies were connected through ownership and financing relationships. Lee Yang-gu had first built a confectionery business after moving to Seoul from South Hamgyong Province in 1947. He subsequently used the Tongyang name for a cement venture and acquired a poorly maintained cement plant in Samcheok, Gangwon Province. The plant had originally been established during the Japanese colonial period. Lee recruited experienced engineers, including personnel associated with the former Onoda Cement operation, repaired and modernized the facilities, and worked to resolve labor problems. The South Korean cement boom of the 1970s provided an important foundation for the group’s growth. Hyun Jae-hyun, who married Lee’s eldest daughter, joined Tongyang Cement in 1977 after working as a prosecutor. He became group chairman in 1989 and led a major diversification program. During the 1980s and afterward, Tongyang expanded into securities, insurance, banking-related activities, information technology, power generation, textiles, and leisure businesses. By 2009, financial subsidiaries, including Tongyang Life Insurance and Tongyang Securities, accounted for more than 70 percent of reported group sales. The group also had connections to the Korean basketball industry, although the basketball team and the confectionery business were later associated with the separately spun-off Orion Group. The group’s expansion was accompanied by high leverage and complex affiliate financing. Tongyang Inc., described as the group’s de facto holding company, carried a debt-to-equity ratio of approximately 12 to 1 in June 2013. A liquidity crisis intensified in September 2013 as debt maturities approached and the group struggled to raise sufficient funds. The group defaulted on more than 100 billion won of debt on September 30, 2013, and several affiliates entered court receivership, including Tongyang Corporation, Tongyang International, Tongyang Leisure, Tongyang Networks, and Tongyang Cement. The crisis also affected Tongyang Securities, which had distributed bonds and other financial products issued by Tongyang affiliates to individual investors. Regulators investigated allegations that investors had not been adequately informed of the risks and that the securities company had been pressured to sell group-related products despite worsening financial conditions. The group’s chairman and senior executives were arrested in January 2014 on allegations including fraud and malpractice in the issuance and sale of financial products. More than 800 customers later participated in a class-action lawsuit seeking compensation. After the collapse, major assets were sold or reorganized. Tongyang Power was acquired by POSCO Energy in 2014, while Tongyang Securities was acquired by Taiwan’s Yuanta Securities and subsequently moved toward adopting the Yuanta brand. Tongyang Cement & Energy was sold in 2015 to Sampyo Group and a Korea Development Bank private-equity fund and was later renamed Sampyo Cement. The group therefore ceased to operate as the diversified conglomerate described in the years before the 2013 default, although several businesses continued under new ownership or corporate identities.

Tongyang Group began in 1957 when Lee Yang-gu expanded from confectionery manufacturing into cement. Lee had established a confectionery company after arriving in Seoul in 1947 and later acquired a cement factory in Samcheok, Gangwon Province. The plant had operated since 1942 under Onoda Cement, now associated with Taiheiyo Cement, but was suffering from poor physical conditions and labor disputes. Lee recruited former Onoda engineers, engaged German industrial specialists to assist with repairs, improved labor relations, and recruited heavily from nearby Samcheok High School. These measures helped establish a stronger industrial base during the development of South Korea’s cement sector. The cement industry’s growth in the 1970s supported broader expansion. Hyun Jae-hyun, the husband of Lee’s eldest daughter, joined Tongyang Cement in 1977 after leaving a prosecutorial career. He became chairman in 1989 and pursued diversification into financial services and other industries. During the 1980s, Tongyang acquired or developed businesses in securities, insurance, banking-related services, technology, power, textiles, leisure, and sports. Tongyang Securities, formerly Ilguk Securities, was purchased and renamed in 1984 and became one of South Korea’s larger securities firms within several years. Tongyang Life Insurance also became an important branded affiliate, although ownership ties were later reduced. The group’s corporate structure included Tongyang Inc., formerly Tong Yang Major, as its de facto holding company. In 2007, Tong Yang Major acquired Hanil Synthetic Fiber, a textile company that had entered receivership after the 1997 Asian financial crisis. The acquisition generated litigation over whether a special-purpose vehicle and Hanil’s cash reserves had been used improperly to finance the transaction. The trial court rejected the prosecutors’ claims, and the decision was upheld on appeal and by the Supreme Court. Separate cross-investment issues later resulted in a fine against Tongyang Magic. By 2009, financial services subsidiaries generated more than seven-tenths of group sales. This concentration coexisted with substantial leverage across the wider group. Tongyang Inc. reportedly had a debt-to-equity ratio of about 12 to 1 in June 2013. The group’s liquidity position deteriorated rapidly in September 2013. It considered issuing securities backed by affiliate assets and selling valuable subsidiaries, but failed to meet more than 100 billion won in debt obligations on September 30. Tongyang Corporation, Tongyang International, and Tongyang Leisure entered court receivership immediately, followed by Tongyang Networks and Tongyang Cement. The financial crisis was particularly damaging to Tongyang Securities. The brokerage had sold bonds and other products issued by Tongyang affiliates to retail customers. Following the default, customers alleged that the risks had not been properly disclosed and that the brokerage had been pressured to distribute group debt. The Financial Supervisory Service reported evidence supporting allegations of fraud and stated that Hyun Jae-hyun had compelled the securities business to sell the products. It also found that Tongyang Securities chief executive Jung Jin-seok had misrepresented the group’s condition to employees. More than 800 customers filed a class-action lawsuit in January 2014. The controversy also received public attention after an employee died by suicide and left a note expressing remorse about recommendations made to customers. Asset sales followed the receivership proceedings. Tongyang Power, which had won a bid to develop a large power plant in Samcheok, was sold to POSCO Energy in 2014. Yuanta Securities acquired control of Tongyang Securities in July 2014 and began replacing its former identity with the Yuanta brand. Tongyang Cement & Energy was sold in 2015 to Sampyo Group and a Korea Development Bank private-equity fund and later became Sampyo Cement. The former confectionery business and basketball operation had already been separated through the Orion Group spin-off in 2001. These transactions marked the breakup of Tongyang’s pre-crisis diversified conglomerate structure.

• 2017

  Tongyang Cement becomes Sampyo Cement

  [1]Tongyang Groupen.wikipedia.org

  The former Tongyang cement business adopts the Sampyo Cement name after its change of ownership.

• 2015

  Tongyang Cement is sold

  [1]Tongyang Groupen.wikipedia.org

  Sampyo Group and a Korea Development Bank private-equity fund acquire a controlling stake in Tongyang Cement & Energy.

• 2014

  Major financial and energy assets are sold

  [1]Tongyang Groupen.wikipedia.org

  POSCO Energy acquires Tongyang Power and Yuanta Securities acquires control of Tongyang Securities.

• 2013

  Group defaults and enters receivership

  [1]Tongyang Groupen.wikipedia.org

  A severe liquidity crisis results in a debt default and court receivership for multiple affiliates.

• 2007

  Tong Yang Major acquires Hanil Synthetic Fiber

  [1]Tongyang Groupen.wikipedia.org

  The group acquires the textile company, prompting subsequent litigation over the financing structure of the transaction.

• 2001

  Orion is spun off

  [1]Tongyang Groupen.wikipedia.org

  The former Tongyang confectionery business and related basketball operation become associated with the separately established Orion Group.

• 1989

  Hyun Jae-hyun becomes group chairman

  [1]Tongyang Groupen.wikipedia.org

  Hyun assumes the chairmanship and oversees wider expansion into financial and non-cement businesses.

• 1984

  Ilguk Securities is renamed Tongyang Securities

  [1]Tongyang Groupen.wikipedia.org

  The group’s acquisition of Ilguk Securities leads to the adoption of the Tongyang Securities name.

• 1977

  Hyun Jae-hyun joins Tongyang Cement

  [1]Tongyang Groupen.wikipedia.org

  Hyun Jae-hyun leaves his prosecutorial career and joins the family business, later leading its diversification.

• 1957

  Tongyang Group is founded

  [1]Tongyang Groupen.wikipedia.org

  Lee Yang-gu establishes Tongyang as a cement-centered business after earlier success in confectionery manufacturing.

Historically positioned as a diversified South Korean industrial and financial conglomerate, with cement as its original operating base and financial services becoming its dominant business area before the 2013 debt crisis.

• Construction materials · 1957

  Cement

  Cement manufacturing was Tongyang Group’s founding business and its original industrial base. The group’s Samcheok plant was repaired and modernized after Lee Yang-gu acquired it, and cement remained one of the group’s most important industrial activities until Tongyang Cement & Energy entered receivership and was later sold and renamed Sampyo Cement.

• Securities and financial services · 1984

  Tongyang Securities

  Tongyang Securities was the group’s brokerage and investment-services affiliate. Acquired as Ilguk Securities in 1984, it expanded into a major securities business with overseas representative offices and related banking operations. It became central to the 2013 crisis because it distributed bonds issued by Tongyang affiliates to retail investors. Yuanta Securities acquired a controlling stake in 2014 and moved the company toward the Yuanta identity.

• Life insurance

  Tongyang Life Insurance

  Tongyang Life Insurance operated under the Tongyang name but became increasingly independent from the wider group. Vogo Fund and Atinum Partners acquired substantial ownership interests in 2010–2011. Following the 2013 crisis, the insurer reduced its remaining ownership connections with Tongyang affiliates and reportedly considered changing its name.

• Electricity generation

  Tongyang Power

  Tongyang Power developed a proposal for a two-million-kilowatt power plant in Samcheok, Gangwon Province, using an abandoned mine associated with Tongyang Cement. The project was expected to require substantial investment, but the group’s financial crisis led it to sell the company. POSCO Energy acquired all outstanding shares in 2014.

• Information technology and network services

  Tongyang Networks

  Tongyang Networks provided information technology and network-related services within the group. It was regarded by observers as one of the better-managed affiliates and generated strong revenue growth before the crisis, but nevertheless entered court receivership in October 2013.

• Textiles and synthetic fibers · 1964

  Hanil Synthetic Fiber

  Hanil Synthetic Fiber was a textile company founded in 1964. After experiencing financial distress following the 1997 Asian financial crisis, it was acquired by Tong Yang Major in 2007 and merged into Tong Yang Major in 2008. The acquisition and subsequent affiliate ownership structure were examined in court and by competition authorities.

• 2014

  Arrests of group chairman and senior executives

  Hyun Jae-hyun and three other senior executives were arrested on allegations including fraud and malpractice related to financial-product issuance and sales. The episode followed the group’s default and investor losses.

  Source

• 2013

  Retail distribution of Tongyang affiliate bonds

  Tongyang Securities faced allegations that it sold bonds issued by Tongyang Group companies to individual investors without adequately explaining the risks. Regulators reported evidence of misconduct and said that group leadership had pressured the securities business to distribute the products despite the group’s deteriorating finances.

  Source

• 2010

  Hanil Synthetic Fiber acquisition litigation

  Prosecutors alleged that the financing structure used for Tong Yang Major’s acquisition of Hanil Synthetic Fiber violated laws concerning leveraged buyouts and fiduciary duties. The trial court rejected the claims, and appellate and Supreme Court decisions upheld that outcome.

  Source

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• 2015

  Sale of Tongyang Cement & EnergyM&A

  Background

  Tongyang Cement & Energy entered court receivership during the 2013 group crisis.

  Action taken

  Sampyo Group and a Korea Development Bank private-equity fund acquired a 55 percent stake.

  Aftermath

  The company was renamed Sampyo Cement in 2017.

  Acquisition value. ₩794 billion (September 2015)

  Source

• 2014

  Sale of Tongyang Power to POSCO EnergyM&A

  Background

  Tongyang needed liquidity and had initially considered selling only a minority stake in its power-generation affiliate.

  Action taken

  The group agreed to sell the entire company, and POSCO Energy’s board approved the acquisition of all outstanding shares.

  Aftermath

  Tongyang Power left the group and its proposed Samcheok project continued under new ownership.

  Acquisition value. ₩431.1 billion (2014)

  Source

• 2014

  Yuanta Securities acquires Tongyang SecuritiesM&A

  Background

  Tongyang Securities needed a new owner after the group default, investor withdrawals, and allegations concerning the sale of affiliate bonds.

  Action taken

  Yuanta Securities acquired a 53.61 percent stake and installed Hwang Wei-cherng as co-chief executive.

  Aftermath

  The company moved toward a name change and adoption of the Yuanta brand.

  Source

• 2013

  Asset sales and restructuring after liquidity crisisStrategy

  Background

  The group faced a severe cash shortage, heavy leverage, and debt maturities that it could not meet.

  Action taken

  Tongyang sought to sell key subsidiaries and entered court receivership for multiple affiliates after defaulting on more than 100 billion won of debt.

  Aftermath

  Tongyang Power, Tongyang Securities, and Tongyang Cement were subsequently sold or transferred to outside owners, breaking up the former conglomerate structure.

  Source

1. 1Tongyang Groupen.wikipedia.org