This article was published on Feb. 19, 2025, at 3:43 p.m. on ChosunBiz MoneyMove.
To prevent a situation similar to the "second Bang Si-hyuk incident," the Korea Exchange has decided to strengthen its review of the contract details of the largest shareholders of companies applying for listing. Therefore, corporations seeking to list on the KOSPI or KOSDAQ must submit information about who their largest shareholders are and what contracts they have entered into to the Korea Exchange.
According to the financial investment industry on the 19th, the Korea Exchange recently instructed the departments in charge of initial public offerings (IPOs) at securities firms to submit details of contracts related to the largest shareholders when filing for preliminary listings. This is to prevent cases like that of Chairman Bang. In the future, when securities firms are overseeing an issuer's IPO, they must report contracts of the largest shareholders that could significantly impact investors' decisions. Failure to comply may result in the Korea Exchange rejecting the listing review.
The catalyst for this change was Chairman Bang. After five days of its listing in 2020, HYBE's stock price plummeted nearly 50% (from 351,000 won to 177,000 won) compared to its peak. One reason for the decline was the sell-off by private equity funds (PEFs).
However, it was belatedly revealed that Chairman Bang entered into shareholder agreements with PEFs such as STIC Investments, Easton Equity Partners, and New Main Equity before the listing.
The main point of the contract was that if HYBE completed the IPO within a specified period, Chairman Bang would receive about 30% of the profit from the sale of the PEF's shares. Conversely, if the IPO did not take place, Chairman Bang agreed to buy back their shares. After successfully listing, STIC Investments, which had invested 103.9 billion won, recovered 961.1 billion won. Easton Equity Partners and New Main Equity, which invested 125 billion won, also benefited, while Chairman Bang received approximately 400 billion won in return.
Chairman Bang was able to seek additional profits, and the PEFs could potentially avert unsuccessful capital recovery, so it was a win-win contract for both. The issue is that important information regarding listed corporations was not disclosed externally. A senior official at a securities firm noted, "From Chairman Bang's perspective, since he could potentially seek excess profits in the billions of won, it would not have been advantageous for him to inflate the stock price right after the listing," adding, “However, other investors likely recognized that since Chairman Bang's shares were all under lock-up, the immediate stock price after listing was not crucial. It is indeed a matter that influences the investment decisions of ordinary investors regarding the private contracts with the PEFs.”
In this regard, HYBE countered that, "In the process of preparing for the listing, we provided the relevant shareholder agreements to the underwriters, and the underwriters reviewed the agreements according to the related laws and regulations, and we believe there was no violation of the law." It is interpreted that the Korea Exchange's request for future submissions of contracts related to the largest shareholders of issuers reflects HYBE's stance.
Meanwhile, discussions about sanctions against Chairman Bang by financial authorities have not progressed. This is because the potential for legal violations is not clear. In the investment prospectus released a month before the listing, HYBE stated that of the shares scheduled to be listed, 10.05 million shares, corresponding to 29.7%, could be available for trading immediately after the listing. HYBE noted, "The shares available for trading can be sold starting from the listing date," adding, "There is a possibility that the stock price could fall due to the sale of those shares."
HYBE's available shares were not more than those of other companies. A look at the available share ratios of the five companies that were listed before HYBE shows that C&R Research had 85.59%, VaxCell-Bio at 52.27%, VINATech at 44.75%, NEXTIN at 43.89%, and K-Ensol at 41.3%, all exceeding the proportion of shares that could be released immediately after HYBE's listing.
A spokesperson for the Financial Supervisory Service stated, "If HYBE had stated the shareholder agreements in the securities registration statement, it would have provided investors with information that there could be available shares." However, he noted, "There is no explicit regulation stating that this must be written in the securities registration statement, so it falls into a gray area."