[Edaily Marketin LEE GEON-EOM KIM YEON-SEO Reporter] Corporate bonds issued by distressed companies in a state of complete capital impairment are finding their way onto retail investors’ smartphone screens, lured by high interest rates. Due to an investment environment where purchases can be made with just a few clicks or taps, the default risk of non-investment-grade companies is flowing into individual accounts without being properly filtered out. Experts point out that to prevent such unprotected, blind investments, we must first dispel the misconception that “corporate bonds are as safe as deposits.”

According to the financial investment industry on the 6th, following JR Global REIT’s filing for rehabilitation proceedings last April, major affiliates of the JoongAng Group—including JTBC—declared default in July, and cases of losses among retail investors holding related bonds are being confirmed one after another. This crisis has revealed that there were virtually no safeguards in place to screen out corporate bonds issued by companies that were either fully capital-impaired or facing a liquidity crisis before they were sold to individual investors.

This structural flaw is linked to the 2012 amendment to the Commercial Act. In the past, the law strictly restricted companies in a state of capital impairment from issuing corporate bonds, but as part of deregulation efforts, those restrictions were lifted, paving the way for even troubled companies to issue bonds at any time simply by offering high interest rates. The legal safety net that once set issuance limits has disappeared, leaving the matter entirely up to market demand and credit ratings.

The problem is that investor awareness—which should underpin this now-unrestricted issuance structure—has remained stagnant. It has been pointed out that, due to a combination of the common belief that corporate bonds are safer than stocks and a vague trust in the prestige of being a subsidiary of a major conglomerate, a significant number of individual investors purchase these bonds without actually scrutinizing the issuer’s financial condition. Given the low liquidity of bonds, if a default occurs, the losses fall squarely on individual investors.

A corporate bond market official stated, “The perception that JR Global REIT is a REIT with solid collateral assets, and the prestige of the ‘Joongang’ name for affiliates of the Joongang Group—including JTBC—influenced investment decisions,” adding, “Even as credit ratings were being downgraded, there was little concern that this would actually lead to a default.”

He continued, “Considering that even credit rating agencies displayed a complacent attitude—thinking, ‘Surely Joongang wouldn’t collapse’—until the financial distress reached a critical point, it is difficult to blame individual investors alone for their decisions.”

There are growing calls in the market to supplement the system by raising the bar at the investment stage, rather than blocking the issuance stage at the source to prevent such risks from recurring. This stems from concerns that shutting down funding channels altogether could actually accelerate a liquidity crunch for struggling companies.

An investment banking (IB) industry official, who requested anonymity, said, “The most important thing is to dispel the mistaken prejudice that corporate bonds are safe assets,” adding, “An environment must be created where bond investors themselves can assess corporate risks and invest prudently.”

He went on to emphasize, “To achieve this, it is paramount to establish measures—such as pre-investment education—even if limited to non-investment-grade bonds.”