Ostem Implant, Accounting Loss on Loan to Chairman Choi Gyu-ok's Family Company

Choi Kyu-ok, Chairman of Osstem Implant.

[Asia Economy Reporter Jang Hyowon] Ostem Implant has recorded the losses from the large-scale embezzlement case, reflecting the money lent to a company affiliated with Chairman Choi Kyuok’s family as a loss as well.

According to the Financial Supervisory Service’s electronic disclosure on the 23rd, Ostem Implant announced that impairment losses from bonds other than accounts receivable amounted to 108.8 billion KRW last year. This corresponds to 53.1% of its equity capital.

Impairment loss is an accounting method where loans or receivables that are judged difficult to recover are recognized as losses in advance and recorded as expenses.

The largest portion of the impairment loss amount disclosed by Ostem Implant is 95.8 billion KRW in illegal act receivables. Previously, a financial team manager named Lee at Ostem Implant was arrested on charges of embezzling 221.5 billion KRW of company funds. The company estimated the amount embezzled last year at 188 billion KRW and reflected 50.7% of that, 95.8 billion KRW, as impairment loss.

Aside from the embezzlement amount, a notable impairment loss is in the long-term loans section. Ostem Implant recognized 13 billion KRW as impairment loss on long-term loans last year. This corresponds to 43.6% of the total long-term loans of 29.7 billion KRW, which was treated as unrecoverable at once.

The impaired long-term loans were lent to Ostem Implant’s related parties. Ostem Implant has a subsidiary called Ostem Pharma, to which it lent a total of 16.6 billion KRW, of which 8.2 billion KRW was impaired.

Ostem Pharma is a company that sells specialized and general oral pharmaceuticals, toothpaste, and mouthwash used in dental clinics. Established in 2015 with a 4 billion KRW investment from Ostem Implant, Chairman Choi Kyuok and his family members, Choi Jeongmin and Choi Inguk, acquired shares in Ostem Pharma through capital increases.

As of the end of the third quarter last year, Ostem Implant held 47.95% of Ostem Pharma’s shares, while the remaining 52.05% were held by Chairman Choi, his family, and CEO Eom Taegwan of Ostem Implant. Although Ostem Implant raised its stake to 50.33% through a capital increase in the fourth quarter, Chairman Choi and his family still hold about half of the shares.

In effect, Ostem Pharma is a company where the owner family can exercise control. Moreover, if Ostem Pharma succeeds, the profits are shared between the owner and Ostem Implant, but if it fails, Ostem Implant bears the losses.

In fact, Ostem Pharma grew with full support from Ostem Implant. From 2015 to 2020, except for 2019, about 90% of its sales came from Ostem Implant. Ostem Implant also provided payment guarantees for 7.2 billion KRW borrowed by Ostem Pharma from financial institutions. Despite this, as losses accumulated, Ostem Implant supported Ostem Pharma by lending tens of billions of KRW annually since 2019. However, ultimately, Ostem Implant recognized the money lent to Ostem Pharma as unrecoverable, incurring losses.

An Ostem Implant official explained, “The audit firm recommended a conservative judgment on the recoverability, so the loans to Ostem Pharma and others were reflected as allowance for doubtful accounts. If Ostem Pharma turns profitable, the money can be recovered.”

Meanwhile, Ostem Implant received an “unqualified” audit opinion and an “adverse” opinion on internal accounting control in last year’s audit. Since the embezzlement incident, trading has been suspended, and on the 30th, the Korea Exchange’s Listing Committee will decide whether to delist or grant a remedial period.

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