Korean e-giant Coupang ordered to set aside loss reserves for digital account

[Graphics by Song Ji-yoon]

South Korea’s fast ascending e-commerce platform operator Coupang Corp. has been ordered by the financial authority to set aside loss reserves for its digital pay account holders in case of default.

According to multiple sources from the retail industry on Wednesday, Financial Supervisory Service (FSS) in August issued a warning notice to Coupang for failing to set aside enough reserves to cover the account balance of CouPay Money, the e-commerce platform’s own payment service, in which its users can deposit up to 2 million won ($1,710) in cash for later purchase.

The financial authority warned that there was no safety net that could allow CouPay Money users to redeem the balance in their CouPay Money accounts if Coupang declared default.

Coupang is under financial distress following years of mounting losses. The online retailer logged 1.1 trillion won in operating loss in 2018, making its cumulative deficits swell to 3 trillion won since its inception in 2013. The retail industry forecast Coupang would again suffer an operating loss of between 1.5 trillion won and 2 trillion won this year due to rising labor costs.

Amid growing concerns over the cash-deprived company’s financial soundness, the FSS has ordered Coupang to come up with a management improvement plan such as capital increase. Following the warning in August, Coupang in September increased capital by 150 billion won through rights offering, which is suspected to be reserved as allowance for CouPay Money users.

According to FSS’s electronic banking supervision regulations, a company must be able to cover at least 20 percent of non-redeemable balance with its own capital and should maintain 10 percent or more in share of cash or safe assets such as bank deposits as to total assets.

But the FSS found out that it was not the case for the company during the review. An FSS official who asked to be unnamed confirmed that Coupang failed to satisfy “management guidance” standard as of the end of March.

Coupang has been increasing capital from its U.S.-based holding company Coupang LLC that in November last year received total $2 billion worth of investment from Japanese technology SoftBank’s Vision Fund.

Based on data confirmed by the register office of the Supreme Court, Coupang has secured 1.3 trillion won worth of funds – 600 billion won last year, 520 billion won in June, and 150 billion won in September – in total through share issues.

[ⓒ Maeil Business Newspaper & mk.co.kr, All rights reserved]