The Korea Exchange is reportedly considering whether to designate Kumyang as an unfaithful disclosure corporation, as it withdrew its capital increase of 450 billion won due to an intervention from the Financial Supervisory Service.
Kumyang received a penalty of 10 points for violating disclosure obligations last October in relation to its mining development project in Mongolia. If penalties related to the current withdrawal of the capital increase accumulate, it may be designated as a managed corporation. Kumyang is a KOSPI 200 corporation. If designated as a managed corporation, it will automatically be excluded from KOSPI 200 and may face a suspension of trading for a certain period. It will also be excluded from credit transactions, and margin trading will no longer be possible.
On Jan. 22, the Korea Exchange disclosed a 'notice of designation as an unfaithful disclosure corporation' regarding Kumyang. Earlier, Kumyang had announced a shareholder allocation capital increase plan worth 450 billion won, but withdrew the capital increase on Jan. 17 after strong backlash from minority shareholders.
In a typical situation, the disclosure regarding Kumyang's designation as an unfaithful disclosure corporation should have been issued by the 25th of last month, but as the expected timeline has passed without relevant disclosures, attention is being drawn. According to Korea Exchange regulations, the designation procedure for unfaithful corporations proceeds in the following order: ▲ notice of designation as an unfaithful disclosure corporation ▲ application for objection to the notice ▲ designation as an unfaithful disclosure corporation.
Kumyang could have filed an objection regarding the notice of designation as an unfaithful disclosure corporation by the 6th of last month. After the objection application deadline, the Korea Exchange must conduct a review by the listing disclosure committee within 10 trading days, and then decide on the designation as an unfaithful disclosure corporation within three trading days from the review date. By the 25th, which is after 13 trading days since the 6th, a disclosure concerning Kumyang's designation should have been made. If the matter was assessed as unnecessary for review, then a decision not to designate as an unfaithful disclosure corporation or to defer designation should have been announced in advance.
Given the circumstances, speculation has arisen that the Korea Exchange has little choice but to carefully scrutinize Kumyang's designation as an unfaithful disclosure corporation. Kumyang has not filed any objections regarding the notice of designation as an unfaithful disclosure corporation. The Korea Exchange stated that while regulations stipulate a review should be completed within 10 trading days, issues that require additional time due to special reasons can extend the review period.
The penalties Kumyang may incur from this designation as an unfaithful disclosure corporation appear to be a major issue. Analysts estimate that Kumyang may receive a penalty of 5 points for the disclosure of withdrawing the capital increase. Ko Kyung-beom, a researcher at Yuanta Securities Korea, analyzed, "The evaluation of unfaithful disclosure violations is largely assessed based on significance and motivation, and Kumyang's withdrawal of the capital increase is likely to be assessed as 'ordinary violation' in significance and 'ordinary negligence' in motivation." If Kumyang receives such an evaluation, the penalty will be 4 points.
The problem is that Kumyang has previously been designated as an unfaithful disclosure corporation. If a corporation is designated as an unfaithful disclosure corporation within the last year, a penalty of 1 point is added. Kumyang previously inflated its investment performance forecast related to a mining development project in Mongolia last October and made a correction disclosure, for which it has already received a penalty of 10 points. The researcher noted, "Due to this penalty, there is a high possibility that the withdrawal of this capital increase will incur an additional 1 point, as it would be considered another penalty within one year."
If Kumyang receives a penalty of 5 points or more from the withdrawal of this capital increase, the cumulative penalty over the year could exceed 15 points when combined with the previous penalty from the Mongolian project. According to the disclosure regulations for the securities market, a corporation is designated as a managed corporation if the penalties incurred for violations of disclosure obligations exceed 15 points.
However, from Kumyang's perspective, there may be unfair aspects regarding this designation as an unfaithful disclosure corporation. The reason for the withdrawal of the disclosure was due to the Financial Supervisory Service's rejection of the capital increase. For a corporation to proceed with a capital increase, it must submit a securities registration statement to the financial authorities and obtain approval from the Financial Supervisory Service. The Financial Supervisory Service had previously blocked the capital increase, citing insufficient disclosure in the securities registration statement. It is still unclear whether the Korea Exchange will consider these reasons. This matter is expected to be handled by the listing disclosure committee, which reviews the designation as an unfaithful disclosure corporation.
A Korea Exchange official responded, "The listing disclosure committee is currently preparing for a review." A Kumyang official stated, "We have not filed a separate objection regarding the notice of designation as an unfaithful disclosure corporation," adding, "We are awaiting the Korea Exchange's position."