Taekwang Industrial reported that it would sell the exchangeable bond (EB) after initially declaring that the seller was not specified, but as controversy continued, it eventually suspended the EB issuance process due to the possibility of being penalized for improper disclosure.
The Korea Exchange views cases in which disclosure content is fully canceled, denied, or similar, as improper disclosure and will impose sanctions. The manner in which Taekwang Industrial disclosed its EB issuance decision and then postponed it just days later was seen as disappointing by the industry. Some pointed out that there is sufficient reason for sanctions due to improper disclosure.
Issuing an EB backed by its own shares held by Taekwang Industrial was significant and had notable effects on the stock price. After the EB issuance decision was disclosed, Taekwang Industrial's stock price plummeted, and its second-largest shareholder, Trusstone Asset Management, filed for a provisional injunction to halt the EB issuance shortly after the plan was announced.
On the 2nd, Taekwang Industrial announced the temporary suspension of the EB issuance process related to its own shares as the controversy grew. Taekwang Industrial had previously disclosed on the 26th of last month that it would issue $318.6 billion worth of EBs backed by all its treasury shares. The reason for the reversal of the decision in just 7 days was due to strong backlash from shareholders.
Another issue was that the company unusually did not specify a seller when it initially announced the EB issuance decision. Taekwang Industrial stated that it would announce any specified seller later.
The treasury shares held by Taekwang Industrial account for 24.41% of the issued shares. However, it had revealed plans to flood the market with treasury shares through a large-scale EB issuance without even specifying a seller. Shareholders strongly opposed this.
Financial authorities also intervened. The Financial Supervisory Service directed a correction of the disclosure, stating that the EB issuance counterparty was omitted. An official from the Financial Supervisory Service noted, "It is typical to proceed with disclosure after a decision on the seller is made; I have never seen such a case before."
Taekwang Industrial hastily designated Korea Investment & Securities as the seller. This information was first communicated to investors through a press release before the company made the announcement. A Taekwang Industrial official explained, "After the correction request from the Financial Supervisory Service, we held a board meeting and selected Korea Investment & Securities as the seller; since Taekwang Industrial is the disclosure subject, we disclosed what was decided internally."
However, this also raised many issues. According to reports, Korea Investment & Securities had not made a formal decision on investing in Taekwang Industrial's EB, including holding an investment review committee. An official from Korea Investment & Securities stated, "We are currently in the review stage to determine whether to acquire Taekwang Industrial's EB, and no decision has been made yet."
Korea Investment & Securities, having not finalized the acquisition of Taekwang Industrial's EB, nevertheless unilaterally disclosed the seller. Taekwang Industrial noted in a footnote that "the counterparty for disposition is in the process of internal procedures," but industry insiders deemed it unusual for one party to issue a disclosure when mutual transactions have not been confirmed.
An industry insider remarked, "It seems that this disclosure arose during the hurried process of making a correction to respond to the provisional injunction application to suspend the EB issuance, and if Korea Investment & Securities later states that it will not acquire the EB after issuing a unilateral disclosure, it could ultimately be seen as false or improper disclosure."
There are also criticisms that Taekwang Industrial's announcement regarding the suspension of the EB issuance process distributed via a press release violated proper disclosure principles. Trusstone Asset Management, which is Taekwang Industrial's second-largest shareholder, filed for a provisional injunction in court on the 1st, claiming that the EB issuance violated corporate law and constituted breach of trust.
Consequently, on the 2nd, Taekwang Industrial stated in a press release, "We have decided to suspend future subsequent procedures until a court decision is made regarding Trusstone's injunction request," and added, "Taekwang Industrial plans to closely communicate with minority shareholders and labor unions and respect their positions."
An industry insider pointed out, "Based on the disclosures so far, there is a significant possibility that investors may be misled to think that the EB issuance is proceeding normally," indicating that sufficient and accurate information is not provided in light of proper disclosure.