The role of the paid-in capital increase focus review system, designed to fully inform investment risks when financially distressed corporations raise funds, appears to be growing. This is evident as relatively sound listed companies like Samsung SDI and Hanwha Aerospace have also become subjects of review. In this process, there are even misguided expectations among individual investors, such as 'the announcement of a paid-in capital increase must lead to a withdrawal.'
According to financial authorities on the 31st, the paid-in capital increase focus review system activated last month was originally created with financially struggling corporations in mind. The focus review system selects paid-in capital increases that pose a significant risk to shareholder rights as subjects for intensive review and mandates at least one face-to-face consultation. If public offerings are made to general investors rather than shareholders, the review period is 10 days (15 days for unlisted corporations), but if selected as a focus review subject, this period is reduced to a week.
To trace the start of this system, one must go back to last year. In September of last year, the secondary battery company Kumyang announced it would conduct a paid-in capital increase of 450 billion won, citing the need to invest in facilities and repay debts. Just before announcing the plan, Kumyang was in a deficit, with a net loss of 55 billion won from January to June. The securities registration statement did not provide any additional explanation on how the funds raised from the paid-in capital increase would be used. Ultimately, it was rejected by the Financial Supervisory Service (FSS) and, after two more revisions, submitted the securities registration statement; however, the paid-in capital increase plan was retracted in January of this year.
In December of last year, the biotech group CHA Biotech announced that it would proceed with a paid-in capital increase of 250 billion won. Again, the FSS deemed the use of funds unclear. Although they disclosed the minutes of the board meeting, they only indicated that the funds would be used for the acquisition of other companies, operating funds, and facility funds. CHA Biotech has recorded losses for five consecutive years since 2020, failing to pass the FSS review and submitted its fifth corrected registration statement this month.
In other words, the focus review system aims to encourage corporations to transparently communicate their intent when conducting paid-in capital increases rather than disrupting the typical funding process. In particular, it aims to closely examine the funding intentions of deficit corporations. This aligns with the FSS's announcement this year to enhance accounting reviews and audits for 'corporations with a high possibility of delisting.'
Currently, there are five companies subject to focus review, and except for Samsung SDI and Hanwha Aerospace, all are small companies. Cellid, which has reported operating losses exceeding 10 billion won for three consecutive years and initiated a paid-in capital increase after six months, is included in this group, as are Coreline Soft, which has also experienced losses for three years, and Hyungji I&C, which turned its profit into a loss last year.
It was unexpected that Samsung SDI and Hanwha Aerospace, affiliates of the top 10 conglomerates, were included as focus review subjects. Although their capital increases amount to 2 trillion won and 3.6 trillion won, respectively, they are not deficit corporations. Their inclusion as focus review subjects is interpreted as a result of the FSS being conscious of market reactions.
Although the financial authorities are not the determining body for the appropriateness of corporate management activities, investors expect them to take on that role. This can be seen even in stock discussion forums. One shareholder noted, '(the corporation) announced it would conduct a malign paid-in capital increase. Please file a complaint on the FSS website,' sharing the URL. Another shareholder commented, 'Are we just cannon fodder?' and urged, 'Let's comment on articles related to the (paid-in capital increase).'
However, as there is no way to quantify the criteria for 'detail,' the FSS faces continuous criticism for applying arbitrary standards in its reviews. An FSS official stated, 'If a company is conducting a paid-in capital increase due to financial difficulties, it simply needs to write that,' and added, 'The principle of disclosure is to avoid presenting unwarranted rosy projections.'
The relevant standards are expected to be hinted at through Cellid. Cellid disclosed in its securities registration statement that it is in urgent need of additional funding as it has incurred higher-than-expected costs for research and development of its major pipelines, including a COVID-19 vaccine to respond to Omicron.
Cellid stated it would use funds for ▲ completing global Phase 3 clinical trials for the COVID-19 vaccine and applying for conditional item approval ▲ progressing with clinical trials for the cancer immunotherapy vaccine pipeline ▲ and production costs for commercializing the variant-targeted COVID-19 vaccine. If Cellid passes the review, other companies that have disclosed similar levels of information are likely to proceed with their capital increases without a hitch.
There are suggestions that, to prevent any reckless paid-in capital increases, the financial authorities should not rely solely on system constraints. This reflects the idea that creating a culture among investors to cut off funds for abnormal corporations would be more effective. An official from the financial authorities stated, '(To advance the capital market), it's insufficient for just the Financial Services Commission and the FSS to act,' adding, 'Investors also need to be involved for the system to operate effectively in practice.'
금융당국의 권한엔 한계가 있어 배째라식 유상증자를 막으려면 제도에 전적으로 기댈 게 아니라는 조언이 나온다. 이상 기업엔 자금이 끊기는 투자 문화가 조성되는 게 더 효과적이라는 뜻에서다. 한 금융당국 관계자는 “(자본시장을 선진화하는 데에) 금융위원회와 금감원만 뛰어서는 부족하다”며 “투자자도 함께해야 제도가 실무에서 강력하게 작용한다”고 했다.