The energy company ILJIN Power, listed on the KOSDAQ market, faced an abrupt trading halt on the 13th, leaving shareholders in shock. After the company disclosed allegations of embezzlement and breach of trust against its executives, the Korea Exchange immediately halted trading to assess whether the company meets listing eligibility standards, locking investors out.
Investor dissatisfaction arose from the mechanical decision to halt transactions. While it is true that the occurrence of embezzlement and breach of trust damages corporate value, halting transactions solely due to these allegations ties up existing investors' funds. Particularly considering that ILJIN Power has maintained a solid business for several years and that its internal control system is functioning normally, there are also concerns that the trading halt rather exacerbates investors' losses.
ILJIN Power, being a stock with no restrictions on credit transactions and recently benefiting from heightened interest in nuclear power stocks, was on an upward price trend. As of the 13th, ILJIN Power's credit ratio stood at 4.4%. Those who borrowed money to purchase shares in anticipation of further price increases will have to bear interest during the trading halt period.
ILJIN Power announced that it has filed a complaint against three employees, including a managing director, for violations of the Act on the Aggravated Punishment of Specific Economic Crimes, including embezzlement and breach of trust. The amount identified by the company regarding the embezzlement and breach of trust stands at 2.46 billion won, which is equivalent to 1.9% of its equity.
Immediately after the disclosure, ILJIN Power's stock trading was suspended. According to the KOSDAQ listing rules, embezzlement or breach of trust occurring within a listed company warrants a review of the company's eligibility for listing. The Korea Exchange assesses whether it should proceed with a substantive review within 15 trading days from the occurrence of the event; during this time, stock trading is suspended.
In the case of ILJIN Power, the Korea Exchange must decide on whether to conduct a substantive review before July 4th, and if it is determined that a substantive review is not warranted, notifications regarding the lifting of the trading halt will be provided.
The Korea Exchange explains that the trading halt is a measure for investor protection, but shareholders have expressed confusion. They question whether it is appropriate to immediately suspend trading based solely on the fact that embezzlement and breach of trust have occurred, especially given the company's good performance and stable financial health.
ILJIN Power, which specializes in maintaining power plants including nuclear power plants, generates annual sales of approximately 190 billion won (on a consolidated basis) and net profits of around 10 billion won. Thanks to maintaining stable business operations for a long time, its reserve ratio (the ratio of retained earnings to capital) exceeds 1600%, making it well-known as a high-dividend stock. The company explains that the embezzlement and breach of trust by its employees are within manageable limits.
Shareholders particularly focus on the fact that the company's internal control system is functioning smoothly, as the company quickly identified and addressed the incident of embezzlement and breach of trust. The company stated, "We are taking civil and criminal action against the involved personnel, and we promptly disclosed this fact on the day the complaint was filed to inform investors."
According to the company, three employees receiving allegations have been excluded from their duties, and their PCs have been secured for investigative cooperation. The company added, "We are working to secure the embezzled and breached funds through provisional seizure and recovery efforts."
The Korea Exchange plans to consider all these factors to determine whether ILJIN Power falls under the substantive review for listing eligibility, but for a considerable period, investors' funds will inevitably be tied up.
A recent investor who had been keeping an eye on ILJIN Power's stock said, "While the occurrence of embezzlement and breach of trust is a factor that could drive the stock price down, if this information does not significantly impact the company’s essence and business, it could turn into an investment opportunity. However, the trading halt has eliminated the opportunity for transactions altogether, and it seems necessary to consider measures that allow the market to determine the prices rather than mechanically deciding on trading halts."
In relation to this, the company stated, "We are making multifaceted efforts to not be subject to substantive review and to resume trading as soon as possible," adding, "We are also considering measures to restore the company's credibility and enhance shareholder value."