Tongyang Systems, which was launched as the IT institutional sector of Tongyang Networks and underwent a spin-off, is entering the corporate liquidation process after failing to sell its management rights. It appears that SKS Private Equity, the second-largest shareholder and a domestic private equity fund management company, will effectively lose its entire investment.
According to the investment banking (IB) industry on the 6th, Tongyang Systems has decided to cancel the management rights sale process and liquidate the corporation. Earlier, it was confirmed that no bidders participated in the main auction conducted by Tongyang Systems' sale managing company, Jeong In Accounting Corporation. The side of Tongyang Systems, which failed to find a buyer, has also submitted a petition to terminate the rehabilitation procedure to the court, which is currently in the corporate rehabilitation process.
Tongyang Systems is an IT specialized corporation established in 1991 under the Tongyang Group. Subsequently, in March 2020, Tongyang Networks spun off its IT institutional sector to establish Tongyang Systems and sold it, inheriting all existing businesses and intellectual property rights (IP) to CEO Choi Jang-rim, who gained recognition as a first-generation venture entrepreneur. After acquiring Tongyang Systems, CEO Choi attempted to shift away from the low-profit domestic system integration (SI) sector and expand into new businesses.
SKS PE also saw growth potential in Tongyang Systems and invested in October 2022 by acquiring redeemable convertible preferred shares (RCPS). RCPS refers to shares that hold a redemption right to request the return of investment capital with interest as the maturity approaches, and a conversion right that allows preferred shares to be converted into common stocks. Currently, the 'SKS Joint Investment 2021 Private Equity Partnership' managed by SKS PE holds a 17.78% equity stake and is the second-largest shareholder.
However, due to a recession and industry downturn resulting in continuous deficits, Tongyang Systems ultimately applied for corporate rehabilitation. According to the investigation report by the accounting firm appointed by the court, Tongyang Systems' assets are around 5 billion won, while current liabilities stand at 15 billion won. The deficit is reported to reach 23.8 billion won. The company's capital and total equity are each at 1.4 billion won and negative (-) 22.4 billion won, putting it in a state of capital impairment.
With Tongyang Systems' decision to liquidate, financial investor SKS PE is expected to write off its entire investment. Currently, with assets of only 5 billion won, it is unlikely that there will be any distribution to junior creditors, including shareholder rights, as it will also be difficult to repay senior claims such as rehabilitation claims and collateral.
An industry insider noted, 'Typically, when the rehabilitation process is terminated, it transitions into bankruptcy proceedings. Corporations that go through corporate rehabilitation or bankruptcy have more liabilities than assets, so shareholders usually do not recover any funds.'