TAE KWANG CORPORATION will issue its treasury stock-based exchange bonds (EB), which will be fully underwritten by Korea Investment & Securities. TAE KWANG CORPORATION publicized the issuance of the EB without designating an underwriter but was rejected by the Financial Supervisory Service; consequently, it held a board meeting to confirm the underwriter.
The second-largest shareholder, Trusstone Asset Management, which filed for a temporary injunction claiming that TAE KWANG CORPORATION's issuance of EB is illegal, continues to oppose the board's decision made that day. The resolution is hastily made to resolve the controversy of violating the Commercial Act, and the company still has not fully explained the purpose of issuing EB.
According to investment banking (IB) industry sources on the 1st, TAE KWANG CORPORATION held an emergency board meeting that afternoon and approved the issuance of a 320 billion won unnamed non-convertible, non-guaranteed private EB to Korea Investment & Securities. The coupon rate and maturity rate are both 0%. The maturity is three years, with the condition that the principal will be repaid in a lump sum at maturity.
An IB industry official noted, "Korea Investment & Securities originally had a very good relationship with TAE KWANG CORPORATION," adding that "the decision to take on all the EB in question is evidence of the strong relationship between the two companies."
The exchange target of the EB is a total of 271,769 shares of TAE KWANG CORPORATION's treasury stock. This accounts for 24.4% of the total shares issued. The exchange price is 1,172,251 won.
Additionally, TAE KWANG CORPORATION specified that the purpose of its funding is to invest in 'beauty-related new businesses,' 'investing in existing fiber businesses such as developing PAR fibers,' and 'investing in increasing NaCN production and securing PET depolymerization technology in its existing petrochemical business.' Previously, it was noted as 'new business investment' in a report.
Earlier, the FSS intervened in TAE KWANG CORPORATION's plan to issue treasury stock-based EB. They pointed out that there was an issue because the counterparty for the EB issuance was not specified in the report submitted by TAE KWANG CORPORATION on the 27th of last month.
The FSS's late intervention was influenced by the legal action taken by Trusstone Asset Management, the second-largest shareholder of TAE KWANG CORPORATION. The day before, Trusstone applied for a restraining order in the Seoul Central District Court, requesting the cessation of illegal acts by the directors. The request for a restraining order aims to prevent actions that violate laws or regulations in advance.
Trusstone claims that the legal basis for arguing that TAE KWANG CORPORATION's resolution is illegal is Article 22 of the Commercial Act Enforcement Decree. According to this provision, if EBs can be exchanged for treasury stock with a third party who is not a shareholder, the board must specifically determine both the counterparty (specific individual or corporation) and the conditions of issuance.
Despite TAE KWANG CORPORATION holding a board meeting that day and confirming Korea Investment & Securities as the EB underwriter, Trusstone still asserts that there are issues.
A senior Trusstone official stated, "One major reason the issuance of TAE KWANG CORPORATION's EB became a problem is that the underwriter was not specified, and another reason is that the purpose of issuance is unclear." They added, "Although the company held an emergency board meeting today to approve the issuance of EB despite opposition from two outside directors, the purpose of issuance has not yet been completely clarified."
In fact, legal circles have pointed out that the reason TAE KWANG CORPORATION's case is particularly problematic is related to the 'purpose' of the EB issuance. They argue that claiming to issue EB for purposes other than defending management rights is unconvincing in a situation where no underwriter has been designated. The current government's proposed amendment to the Commercial Act includes a requirement for the mandatory redemption of all treasury stocks. Consequently, corporations are attempting to take advantage of the 'twofold effect' of defending management rights and securing funds by issuing EB that can be exchanged for treasury stock before the new law takes effect.
Trusstone intends to raise concerns about TAE KWANG GROUP's attempt to acquire Aekyung Industrial. TAE KWANG GROUP's subsidiary, TAE KWANG CORPORATION, has entered the acquisition battle alongside Yuanta Investment as a co-general partner (Co-GP) and is currently on the shortlist.
A Trusstone official remarked, "The transaction is not about TAE KWANG CORPORATION directly acquiring Aekyung Industrial, but rather TAE KWANG CORPORATION providing funds to its subsidiary PE for the acquisition, and we need to evaluate whether this constitutes a legitimate transaction."
Furthermore, Trusstone stated that it has no plans to withdraw its temporary restraining order lawsuit. A Trusstone representative remarked, "The basis of the injunction request is not only the suspicion of violating the Commercial Act but also questions about whether proper price assessments were made." Trusstone has claimed that disposing of treasury stock at a level equal to one-fourth of its net worth per share raises concerns of breach of trust.