While the stock price rose on political theme stocks, Hyungji I&C, which announced a large-scale paid-in capital increase, was able to secure funding as planned. This was due to the swift review of the securities registration statement by the Financial Supervisory Service. (Related article☞“Hanwha and Samsung were all blocked, so why here?” The controversy over Lee Jae-myung’s theme stock passing the swift review of the paid-in capital increase)
An FSS official explained, “The company’s financial condition is poor, and the large scale of the paid-in capital increase made it a focus for examination, but we determined that the investment risks and the use of funds detailed in the securities registration statement were not lacking.”
Hyungji I&C's securities registration statement passed the FSS review with just one correction in three weeks after submission. In contrast, it took CHA Biotech six corrections over four months to submit a securities registration statement and pass the FSS review during a similar period.
The industry has focused on the securities registration statement submitted by the company. They are examining what contents should be included to meet the FSS’s standards, citing the case of Hyungji I&C.
However, even if Hyungji I&C's securities registration statement passed the review smoothly, it is difficult to describe this as a 'standard.' The management situation, background for the paid-in capital increase, and uses of funds differ from company to company. Shareholders’ attitudes towards the paid-in capital increase can also indirectly influence the review.
It appears that Hyungji I&C's paid-in capital increase being categorized as a ‘key review’ target also increased the speed of the examination. In cases where damage to the rights of general shareholders is feared, the FSS scrutinizes the necessity for capital increases and uses of funds under stricter standards.
The securities registration statement submitted by Hyungji I&C details the justification for the paid-in capital increase and how the funds raised will be used in the future.
Initially, the company explained that it is difficult to secure funding through bond or corporate bond issuance or asset securitization. In a poor operating environment where increasing sales is hard to expect, issuing bonds raises concerns about weakening financial soundness due to the burden of principal and interest repayments, and finding suitable underwriters in the financial market for issuing private equity-linked bonds is also difficult.
It was also noted that the company already has 10 billion won in borrowings from selling receivables through SPC last year, making additional asset securitization for fundraising challenging, and considerable funds have been borrowed secured by real estate and shares of related companies the company owns.
The funds secured through the paid-in capital increase are planned to be used for company operations, facility investments, and debt repayments, with detailed information contained in each item. The operational funds are expected to cover payments for production purchases and imports of overseas textiles, with comparisons made between previous month's expenditures and expected future expenditures.
The company also disclosed the scale required for each of its major suppliers and specified the scale needed for each clothing brand it operates when renovating department store and outlet displays. The debt repayment funds were detailed with information on the early redemption request period for previously issued private placement convertible bonds (10th series).
Among the investment risk factors outlined by the company, 'uncertainty of being a going concern' was also mentioned. According to the securities registration statement, Hyungji I&C stated, “We are strengthening online and offline sales channels to increase product sales, but we do not know when and to what extent profitability will recover.” They further added, “If the decline in profitability continues, concerns about being a going concern may arise, which could lead to audit opinions being restricted, causing the Korea Exchange to designate it as a managed or alerted stock.”
Previously, Kumyang had also mentioned the uncertainty of being a going concern when planning a paid-in capital increase last year. However, what Kumyang pointed out was content highlighted by external auditors.
Additionally, Hyungji I&C explained the purposes for which the funds from the paid-in capital increase will be used in a letter sent to shareholders, and specified that a separate Q&A session was held at last month's shareholders' meeting.
However, an FSS official remarked, “Since it varies from listed company to listed company, it is hard to say which securities registration statement was well written or likely to pass based on a single criterion,” and added, “It is essential to detail the purpose of fund usage, investment risks, and efforts for communication with shareholders according to individual company situations.”