This article was published on March 21, 2025, at 5:55 p.m. on the ChosunBiz MoneyMove site.
S&W, a KOSDAQ-listed ship machinery company, is under scrutiny for purchasing real estate held by mask manufacturer Shinil at nearly three times the public price. While significant discrepancies between actual transaction prices and public prices are relatively common in regional real estate, the transaction involving these companies is under attention because it may be linked to corporate succession.
There are suggestions that the parent company (S&W) purchased the real estate of the son's personal company (Shinil) at an inflated price and plans to use that money to buy equity in the parent company for succession.
According to the Financial Supervisory Service's electronic disclosure system on the 21st, S&W announced that it will buy land and a building located in Gangseo-gu, Busan, from Shinil for 14.9 billion won early this month. This amount accounts for 24% of S&W's total assets (62 billion won). To finance the property acquisition, S&W supplemented part of the amount through bank loans.
Market voices suggest that Jeong Hwa-seop (79), chairman of S&W, assisted his son, Jeong Woo-jin (51), in funding his acquisition of the chairman's equity. Shinil, which sold the real estate to S&W, is a private company where Jeong Woo-jin holds 100% equity.
The real estate purchased by S&W for close to 15 billion won was valued at 5.8 billion won (public price) as of the end of 2023. This is noted in Shinil's audit report. The amount of tangible assets, including buildings and structures on the land classified as assets for sale in Shinil's financial statements, is only 9.8 billion won. S&W purchased the real estate held by the son's company for more than 5 billion won over the public price.
Based on the closing price of 2,925 won the previous day, S&W's market capitalization is around 21.1 billion won. Considering this, the value of equity held by chairman Jeong, accounting for 3,023,798 shares (42%), is approximately 8.8 billion won. If Shinil uses the funds from selling the land to purchase the chairman's equity, it would be a smooth succession without any financial burdens.
As of the end of last year, S&W reported sales and net profit of 47.1 billion won and 4.4 billion won, respectively. After completing a turnaround in 2022, the company's performance has been on an upward trend. Analysts suggest that the entry of the shipbuilding industry into a supercycle and the emerging benefits from U.S. efforts to contain China have opened significant upside potential.
However, there are no activities by S&W to boost its share price. Small shareholders of S&W criticize that there are 'no official corporate activities (IR) or dividends.' This can be seen as an indication that there are no efforts to support share prices for a smooth succession from father to son.
S&W previously attempted to sell real estate located at 560 Sinpyeong-dong, Sahagu, Busan, in July 2022. At that time, S&W valued the real estate at 55 billion won when signing the sale contract. This means that S&W holds real estate assets worth more than double its market capitalization.
Industry insiders predict that Shinil, the personal company of Jeong Woo-jin, will eventually acquire the chairman's equity as a method of succession. It is expected to create a governance structure leading from Jeong Woo-jin to Shinil to S&W. Shinil recorded sales of 40 million won and an operating loss of 1.6 billion won in 2023. It seems a company with 40 million won in sales is swallowing a 40 billion won elephant.
Chairman Jeong has already begun the succession process by transferring equity to Shinil. In May last year, he sold 509,000 shares of equity he held to Shinil in a block deal. As of the end of 2023, Shinil, which previously had no shares in S&W, now holds 8.56%. The equity personally held by Jeong Woo-jin is only 850 shares (0.01%).
In relation to this, S&W stated, 'This purchase is according to our headquarters relocation plan,' adding that 'the transfer company (Shinil) is owned by related parties of the major shareholder, and to determine the appropriateness of the transaction price, we conducted evaluations with two appraisal firms before deciding on the purchase price.'