Trusstone Asset Management, the second-largest shareholder of Taekwang Industrial, noted on the 29th that the decision for Taekwang Industrial to issue exchangeable bonds (EB) based on all of its treasury stocks is damaging to shareholder value and contradicts the new government policy of protecting minority shareholders.
On the 27th, Taekwang Industrial held a board meeting and resolved to issue EB worth 320 billion won, targeting all of its treasury shares (equity ratio 24.41%, 271,769 shares). The interest rate on both the principal and maturity is 0%, the term is 3 years, and the acquirer in a private placement has not been disclosed.
In response, Trusstone said, "This decision is not a reasonable business judgment but a trick to evade the recent amendments to the Commercial Act and shareholder protection policies being promoted by the government. Especially, issuing EB targeting treasury stocks has the effect equivalent to a third-party allocation of paid-in capital when exercising exchange rights, seriously infringing on the interests of existing shareholders."
Trusstone is expected to initiate all legal actions, including a motion for a prohibition of disposal, and will hold the directors responsible for their illegal decision.
Trusstone also criticized the statement that Taekwang Industrial plans to use the 320 billion won raised from the EB issuance for new business investments. Trusstone noted, "Taekwang Industrial announced a 10 trillion won investment plan in December 2022, but there has been little actual execution since, so the authenticity of this investment plan cannot be trusted."
Trusstone pointed out that Taekwang Industrial holds liquid assets worth 1.4 trillion won and 900 billion won from the sale of SK Broadband shares as of the first quarter of this year, while its liability stands at only 88 billion won. Trusstone stated, "As a corporation with numerous plots of land, including a real estate worth 1 trillion won in Seongdong, Seoul, we have no choice but to question the necessity of additional EB issuance."
Trusstone said, "Taekwang Industrial has thoroughly disregarded shareholder returns, with an average dividend payout ratio of only 2% over the past decade, and the stock price has been severely damaged, with a price-to-book ratio (PBR) of 0.3. We will do our best to stop Taekwang Industrial's EB issuance using legal and institutional means and to protect shareholder rights and improve corporate governance."