[At a Crossroads for Listed Companies] Fantagio Faces Capital Erosion After Failing to Recover Loan from China's JC Group

[Asia Economy Reporter Jang Hyowon] Fantagio, which is about to be sold, recorded a large-scale loss last year. This was because it wrote off the money lent to the existing largest Chinese shareholder as unrecoverable. Fantagio has fallen into a state of capital erosion.

On the 12th, Fantagio stated in response to an inquiry disclosure that it is considering the sale of shares owned by its largest shareholder, JC Group Korea branch Gold Finance Korea.

JC Group is a Chinese company that became the largest shareholder by acquiring 27.29% of Fantagio's shares in December 2016. Since then, through capital increases and partial share sales, it currently holds 31.33%.

After JC Group's acquisition, Fantagio's sales and profits showed a recovery trend. On a consolidated basis, sales increased from 13.3 billion KRW in 2017 to 13.6 billion KRW in 2018, and jumped to 18.5 billion KRW last year. Operating profit also turned positive from a 6.4 billion KRW loss in 2017 to a 500 million KRW profit last year.

Fantagio is an entertainment company engaged in management of actors and singers, as well as music production. Actors include Park Solmi, Kang Hanna, Seo Kangjun, Gong Myung, and singers such as Ong Seongwu of Wanna One, Astro, and Weki Meki are affiliated with the company.

As of the end of the third quarter last year, the proportion of Fantagio's sales accounted for by celebrity management and music production approached 98.96%. Thanks to the activities of each celebrity, the company was able to achieve growth in sales and operating profit over the past three years.

However, during the same period, the deficit in net income gradually increased. On a consolidated basis, net losses were 8.8 billion KRW in 2017, 9.2 billion KRW in 2018, and surged to 11.4 billion KRW last year. Ultimately, it was revealed that the company fell into a state of capital erosion last year. The capital erosion ratio is 28%.

Net income includes the company's profits and losses from financial transactions or investments outside its main business, representing the actual money the company earned. Although the company made money from the celebrity management business, it suffered losses from other investments or financial transactions.

In particular, the reason for recording over 10 billion KRW in net loss despite operating profit turning positive last year was due to loans to JC Group.

In 2018, Fantagio's short-term loans increased by 11 billion KRW compared to the previous year. Most of this money was lent to companies related to the parent company, JC Group. However, in the third quarter of last year, the company suddenly set an allowance for doubtful accounts on short-term loans at 7.3 billion KRW, which is eight times the 800 million KRW recorded in 2018.

An allowance for doubtful accounts is an accounting expense recorded in advance for portions of receivables expected to be difficult to collect. According to the company, most of the allowance is for loans to JC Group-related companies. It is believed that JC Group borrowed Fantagio's money and will not repay it.

Also, 'Fantagio Hong Kong,' established under JC Group's management, was a cause of net loss. In 2017, Fantagio invested a total of 5.2 billion KRW to establish Fantagio Hong Kong. However, Fantagio Hong Kong's sales have been zero to date. Accumulated losses have reached 2.5 billion KRW. Consequently, Fantagio recognized 2.9 billion KRW of impairment loss out of the initial 5.2 billion KRW investment during the third quarter last year.

Meanwhile, it is known that last year, JC Group's founder, Chairman Wang Jie, was arrested by Chinese public security for illegal fundraising and fraud scandals. Wang Jie is listed as Fantagio's CEO.

This content was produced with the assistance of AI translation services.