Fair Trade Commission Sanctions AmoreG for "Unfair Support of Affiliate Cosvision's Factory Construction Funds"

Providing 75 Billion KRW Time Deposit as Collateral to KDB Industrial Bank to Raise 60 Billion KRW for Kosvision's New Factory Funding

[Asia Economy Reporter Moon Chaeseok] The Korea Fair Trade Commission (KFTC) announced that it has uncovered AmorePacific Group (AmoreG) providing deposit collateral to its affiliate Cosvision, enabling the latter to borrow large-scale facility funds at low interest rates.

On the 6th, the KFTC revealed that it detected unfair support activities between affiliates under AmorePacific and imposed corrective orders and fines of 48 million won each on AmoreG and Cosvision.

Cosvision manufactures cosmetics and sells them to AmorePacific’s cosmetics sales affiliates within the corporate group, such as AmorePacific and Innisfree.

According to the KFTC, AmoreG provided its time deposit of 75 billion won as collateral free of charge to Cosvision. This allowed Cosvision to borrow facility funds from KDB Industrial Bank.

From August 11, 2016, to August 11, 2017, Cosvision borrowed a large-scale facility fund of 60 billion won from the Industrial Bank in five installments at low interest rates ranging from 1.72% to 2.01%, which it used to build a new factory.

This rate was significantly lower than Cosvision’s individual normal interest rate of 2.04% to 2.33%. The individual normal interest rate is the rate proposed by the Industrial Bank to Cosvision at the time of borrowing. It indicated that if other conditions were the same and only the collateral condition was changed to a credit condition, the loan could be provided at that rate.

Calculating the interest rate difference and borrowing period on the 60 billion won loan, the KFTC found that Cosvision benefited by 139 million won due to the low interest rate applied.

Cosvision was a company without the capacity to independently raise funds from financial institutions. Although it pushed for new factory construction to increase production capacity in 2013, from 2015 its net profit declined, cash flow worsened, and it lacked the collateral capacity required for large-scale borrowing.

Only after AmoreG provided 75 billion won in free collateral was Cosvision able to maintain and strengthen its position as a leading business operator through cost competitiveness and improved supply capacity.

After building the new factory, its cosmetic manufacturing and packaging capacity increased by more than 40-50%, and production capacity was improved through automation of manufacturing processes.

During the support period of 2016-2017, Cosvision maintained its position as the third-largest player in the domestic cosmetics OEM (Original Equipment Manufacturer) and ODM (Original Design Manufacturer) market.

It also strengthened its dominance by increasing the AmorePacific corporate group’s OEM and ODM purchase market share from 38.6% in 2014 to 48.5% in 2017.

The KFTC explained that this case is distinct from supporting a marginal company or private profit extraction. Since the parent company provided deposit collateral for a wholly owned subsidiary, the scale of unfair gains from the interest rate difference was not significant, and the borrowed funds were fully used for the construction of the new factory.

Lee Seung-gyu, head of the KFTC’s Holding Company Division, said, "This action is significant in that it detected and sanctioned a case where a large business group damaged the soundness of competitive order and caused economic concentration through unfair support between affiliates."

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