The Fair Trade Commission imposed a penalty surcharge of 18 billion won on Jungheung Construction and filed a complaint with the prosecution for providing free credit support amounting to 3.2096 trillion won for management succession of a subsidiary owned by the founder's second generation. Jungheung Construction and Jungheung Engineering & Construction are construction companies focusing on real estate development and sales, supplying apartments under the 'Jungheung S-Class' brand.
On the 9th, the Fair Trade Commission announced that they had detected 24 cases of free credit support totaling 3.2096 trillion won provided by Jungheung Construction, part of the Fair Trade Commission-designated conglomerate 'Jungheung Group'. The support was aimed at real estate development projects undertaken by six affiliates, including Jungheung Engineering & Construction, fully owned by CEO Jeong Won-ju, the founder's second generation. The Fair Trade Commission determined that these actions constitute unjust support and tunneling under fair trade law, and filed a complaint with the prosecution along with a correction order and a penalty surcharge.
According to the Fair Trade Commission, the credit support was provided from July 2015 to February 2025, with Jungheung Construction offering free guarantees in the form of joint guarantees or capital supplementary agreements for 12 development projects without holding any equity. Jungheung Construction did not perform construction work for these projects and received no compensation for the credit support.
The Fair Trade Commission pointed out that affiliates such as Jungheung Engineering & Construction, which could not secure large-scale loans on their own credit, obtained funds under more favorable conditions than competitors through free guarantees. This, according to the Fair Trade Commission, disrupted fair competition in the housing construction and industrial park development markets.
Based on the credit support, Jungheung Engineering & Construction secured funds amounting to 2.9 trillion won to push forward development projects and achieved 6.678 trillion won in sales and 1.0731 trillion won in profits by the end of 2023. During the same period, Jungheung Engineering & Construction's construction capability evaluation ranking rose from 82nd in 2014 to 16th in 2024.
The Fair Trade Commission judged that the recent support by Jungheung Construction was part of a plan to reorganize the group's governance structure around the second generation of the founder for management succession. In fact, Jeong Won-ju acquired Dongsil Construction, the predecessor of Jungheung Engineering & Construction, for approximately 1.2 billion won in 2007, and since then, the Jungheung Group has transitioned from a Jungheung Construction-centered system to one centered around Jungheung Engineering & Construction. Jungheung Engineering & Construction acquired Daewoo E&C in 2021 and completed its transition to a holding company by 2023.
A Fair Trade Commission official emphasized, 'This is the first case of sanctioning the misuse of the 'capital supplementation agreement', a credit support tool used in large real estate project financing, for tunneling and unjust support by major shareholders' families.' The official added, 'The Fair Trade Commission will continue to monitor tunneling and unjust support acts occurring in the real estate development market.'