The Financial Supervisory Service has put a brake on the capital increase announcement worth 250 billion won by the biotechnology corporation Chabiotech. The reason is that it did not properly meet the format of the securities registration statement or there are deficiencies in stating important matters.
The FSS also intervened in the capital increases of ISU PETASYS and Hyundai Motor Securities following the spin-off mergers of Doosan Group affiliates last year. There are also rumors that Samsung SDI attempted to communicate with the FSS to conduct a capital increase but retried internally after failing to persuade.
Shareholders expressed relief that the FSS is blocking capital increases that negatively affect stock prices, but there is also backlash suggesting that the FSS is forcibly shutting off a clear source of funding for corporations without specific reasons. Despite pressure from the FSS, ISU PETASYS and Hyundai Motor Securities are continuing to submit amended securities registration statements, and there are opinions that this process is only increasing stock price volatility.
According to the electronic disclosure system on the 9th, on the 7th, the FSS demanded that Chabiotech submit a corrected report regarding the previously submitted securities registration statement for the capital increase. Chabiotech revealed plans for a 250 billion won shareholder allocation capital increase after market close on Dec. 20 last year. It stated its intention to secure 250 billion won by issuing 23,148,150 new shares at a price of 10,800 won per share.
Chabiotech's new share quantity is expected to be about 41% of the existing number of issued shares. The company stated that it will use 90 billion won and 20 billion won from the funds raised through the capital increase for acquiring securities from Cha Healthcare and Matica Holdings, respectively. The remaining 120 billion won will be used for working capital and 20 billion won for facility funds.
Chabiotech's stock price plunged sharply after the announcement of the capital increase plan. Concerns have arisen that if the capital increase proceeds, new shares equivalent to about 41% of the existing number of issued shares will flood the market, diluting the stock price. On the next trading day, Dec. 23 last year, after the announcement of the capital increase plan, Chabiotech's closing price fell by nearly 30%, from a stock price of around 15,000 won to 10,510 won. After the news of the FSS's intervention in the capital increase was known, Chabiotech's closing price rebounded slightly. On the 8th, Chabiotech's closing price was 11,830 won, up 1.11% from the previous trading day.
Regarding the corrected report, the FSS stated, "If the securities registration statement does not properly meet the format or if there are false statements or representations regarding important matters in that securities registration statement or if the content of the important matters is unclear, it constitutes a case that can hinder the reasonable investment judgment of investors or cause significant misunderstandings to investors."
Recently, the FSS has been actively intervening in corporations' decisions regarding capital increases. A representative case is ISU PETASYS. ISU PETASYS sudden announcement of a capital increase worth 550 billion won last year drew backlash from shareholders. As the backlash from shareholders continued, the FSS demanded corrections on ISU PETASYS's capital increase plan twice. Notably, it is reported that the second correction request required them to detail their efforts to persuade shareholders.
The FSS also demanded the submission of a corrected report for Hyundai Motor Securities' capital increase securities registration statement worth 200 billion won that was underway. As further intervention in capital increases continues, some cases have emerged where companies reconsider and decide to abandon their capital increase plans. Recently, due to the global electric vehicle 'chasm' (temporary demand slowdown) that dried up funding, Samsung SDI was reportedly considering a capital increase to secure funds but folded during the communication process with the FSS.
Individual investors who have been burdened by the 'bomb' capital increases from corporations are cheering the decision of the FSS. This is because there is indeed a sentiment that companies were trying to easily resolve their financial pressure issues through the shareholders' money during their business operations.
However, since one of the main purposes of a listing is smooth funding, there are also criticisms that the FSS is obstructing corporate decision-making without any clear justification.
A financial investment industry official noted, "Capital increases can be conducted for various purposes, such as large-scale funding for new investments," and added, "Since a capital increase is also determined by the market's supply and demand, if capital increases are completely prohibited, corporations could be blocked from avenues to secure funding."
By continually rejecting securities registration statements without providing an exit for corporations, only extreme fluctuations in stock prices are being repeated. When the FSS's correction demands come out, ISU PETASYS's stock price surges by 5 to 10%, and this pattern of sharp declines occurs once they submit the securities registration statement again. On the 7th, even though ISU PETASYS management emphasized the need for a capital increase during a meeting with minority shareholders, the stock closed down 8.52%, despite the bullish market.