The Financial Supervisory Service noted that it will conduct a "microscope review" of capital increases that are likely to face strong shareholder opposition, examining their necessity, the process of communication with shareholders, and discussions at the board of directors. The intention is to scrutinize controversial capital increases separately, while listed companies expect that the review process for capital increases will be faster than before.
The business community believes that the funding environment will improve if FSS's recent policy becomes established. Some corporations have pushed for excessive capital increases without gaining shareholder consent, creating an atmosphere where capital increases by all listed companies were frowned upon. However, if FSS enforces strict standards for unusual capital increases, it is expected that regular capital increases can proceed smoothly as before.
On the 27th, FSS disclosed the review direction for capital increase securities registration statement, stating that it will focus its review if there are concerns about shareholder value dilution or damage to general shareholder rights.
The key point of this review direction is the introduction of "focus review" for capital increase securities registration statements. If a listing company is subject to focus review, FSS will examine whether the rationale for the capital increase, the communication procedures with shareholders, and discussions at the board of directors are clearly stated in the securities registration statement.
Companies must submit a securities registration statement detailing their capital increase plans to the financial authorities, and they can only proceed with the increase after this statement is approved. If controversy escalates, companies selected for focus review must accurately document the circumstances surrounding the issue, its impact on the company, and their response in the securities registration statement. During this process, company representatives must also have face-to-face consultations at least once.
There are several criteria for becoming a focus review target, one of which is excessive estimates of Initial Public Offering (IPO) performance. When corporations conduct an IPO, they present future sales and operating profit targets, and if they conduct a capital increase at a significantly lower level, they are considered for focus review. Not all companies are subjected to this.
An FSS official said, "It will be targeted at companies that have gone public not long ago," adding that there could be cases of intentional evasion due to the lack of a specific disclosure time. The market sees companies that have gone public within a year as likely candidates.
Additional criteria for focus review selection include ▲ the ratio of capital increase ▲ discount rate ▲ new business investments ▲ occurrence of management disputes ▲ financial performance deterioration or decline in financial structure for three consecutive years ▲ participation of underwriters receiving multiple corrections.
With the introduction of focus review, corporations' funding is expected to become faster. FSS review of capital increases will take a minimum of 10 trading days. If FSS determines that the explanation of investment risks is insufficient after reviewing the securities registration statement, it may instruct the company to rewrite it.
If a securities registration statement is not submitted within three months after an FSS correction request, the capital increase plan is considered completely withdrawn, forcing companies in urgent need of funds to comply with FSS's demands. There is no limit to the number of correction requests from FSS, so capital increases could be delayed by several months. Semiconductor substrate manufacturer ISU PETASYS submitted a securities registration statement on Nov. 8 last year to conduct a capital increase, but it only passed the FSS review on the 21st of this month, three months later, finalizing its first issuance price.
With the establishment of focus review, FSS will conduct intensive reviews for problematic cases over a period of five trading days. It is expected that the long review times that have previously caused complaints from listed companies — which urgently needed funds for capital increases — will be somewhat alleviated. However, just because a company was selected as a focus review target at the time of announcing its capital increase plan, it does not mean that it will continue to be on the focus review track when submitting a second securities registration statement.
Regarding this, a business insider commented, "I think it will serve as a criterion to distinguish between good and poor companies." Another insider also noted, "We have to wait to see how it will be implemented," while interpreting it as part of normalizing the capital market and establishing appropriate order in the issuance market.
Meanwhile, FSS emphasized that this measure is not intended to assess the legitimacy of corporations' capital increases. Even if they do not gain shareholder support, they can proceed with the increase if they sufficiently include investment risk factors. FSS explained, "Through focus reviews, we aim to induce transparent and complete disclosure of the background and discussion procedures for capital increases, thereby enhancing trust in the issuance market and protecting shareholder rights while also assisting companies in raising funds."