State-run Korea Trade Insurance Corp. is facing the risk of undertaking 150 billion won ($134.7 million) debt of medium-sized television manufacturer On Corporation as the TV original equipment manufacturer (OEM) that the agency provided a guarantee for loans is on the brink of going bankrupt due to sales deterioration in global economic slowdown.

The state agency is probing whether the company is intentionally inviting insolvency by siphoning off the proceeds from exports to its subsidiary in the U.S. instead of repaying debts as two former Korea Trade Insurance employees who are on the run for another accounting fraud have also been implicated in the money-losing case with the TV maker.

The agency is trying to recover from the traumatic experience with once-promising venture Moneual that schemed to draw multi-billion-dollar state guaranty on loans with fabricated sales data.

According to industry sources on Tuesday, On Corporation borrowed combined 200 billion won from KEB Hana Bank, Industrial Bank of Korea, and NH Nonghyup Bank, backed by Korea Trade Insurance’s short-term export credit insurance. The Jeju-based TV maker is now de facto bankrupt due to mounting losses from poor sales.

The TV maker’s sales from its 2015 fiscal year ending on June 30, 2016 halved compared to the previous period, and its real estate assets such as lands and buildings were seized in June by its creditors including the Korea Trade Insurance, a liquidation-specialist company and Seoul Guarantee Insurance Co. On Corporation stated in its audit report that its financial health has deteriorated due to a rise in defects in products made in its assembly lines in China.

If the company goes bankrupt, the state guarantee would have to fulfill debt obligations on behalf of the trader it backed to its lenders. The Korea Trade Insurance is trying to redeem some of the losses by collecting the account receivables at On Corporation’s U.S subsidiary.

Established in 2004, On Corporation is an OEM company that supplies liquid crystal display (LCD) TVs that it produces at production base in China to the U.S. retailers including Sears and Walmart.

By Ko Jae-man

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