This article was published on Aug. 26, 2025, at 10:59 a.m. on the ChosunBiz MoneyMove site.
As the legal battle surrounding the exchange bond (EB) issuance of Taekwang Industrial has yet to reach a conclusion, the violation of both the Commercial Act and the Capital Markets Act has become a point of contention. The current Capital Markets Act stipulates that if a listed company issues EB and allocates it to a third party, it must have a 'business purpose.' Truston Asset Management, which applied for an injunction, claims that Taekwang Industrial's EB issuance is not based on legitimate business necessity.
The legal community is weighing the possibility of consolidating the first and second injunction proceedings. In this case, the court's final decision will come after the second injunction hearing scheduled for the 29th. For Taekwang Industrial, which needs to prepare funds for the acquisition of Aekyung Industrial, this is a distressing situation.
◇ Can Capital Markets Act related to convertible bonds (CB) be applied to exchange bonds (EB)?
According to investment banking (IB) industry and legal circles on the 26th, the Seoul Central District Court Civil Division 50 (Presiding Judge Kim Sang-hoon) is examining whether Taekwang Industrial violated Article 165-10 of the Capital Markets Act during the process of deciding to issue an EB based on its own shares totaling 318.6 billion won.
Article 165-10 of the Capital Markets Act concerns the issuance and allocation of bonds by listed companies. This clause states that when a listed company issues EB, it shall apply Article 165-6, paragraph 1, as appropriate.
Article 165-6, paragraph 1, is applicable when a listed company issues and allocates new shares. In principle, shareholders must be given the opportunity to subscribe to new shares according to their equity ratio. However, exceptions can be made if there are business needs such as 'introduction of new technologies' or 'improvement of financial structure', allowing the specific allocation of new shares to certain individuals. Therefore, when a listed company issues EB, it is still required to follow the new share issuance rules.
Truston has claimed that the issuance of EB based on Taekwang Industrial's own shares effectively produces the same result as the issuance of new shares through the issuance of CB. Releasing treasury shares into the market means that the company is putting shares it had retained rather than extinguishing them, resulting in an increase in the number of outstanding shares and, from the perspective of existing shareholders, the dilution effect on equity is the same. Therefore, the aforementioned provisions of the Capital Markets Act can serve as the basis for Truston's claim.
On the other hand, Truston argues that Taekwang Industrial's proposed new business does not fall under the 'business purpose' permitted by the Capital Markets Act. Previous precedents related to CB have stated that the reasons put forth by Taekwang Industrial do not constitute a legitimate business purpose. Taekwang Industrial previously issued a press release after Truston applied for the first injunction, stating, 'We will invest 1.5 trillion won to enter new businesses such as cosmetics, energy, and real estate development.'
In contrast, Taekwang Industrial asserts that such new business initiatives qualify as business purposes according to the Capital Markets Act. Furthermore, they maintain that applying provisions regarding CB issuance to EB is problematic.
The relevant legal provisions were merely established to handle forfeited shares and should not be interpreted as requiring 'a business purpose when allocating EB to a third party.'
◇ The essence of the first and second cases is the same, making consolidation possible… The longer it takes, the more anxious Taekwang becomes.
Legal circles believe that there is a high possibility of consolidating the first and second injunctions requested by Truston. The first and second cases differ only in their targets; the essence is the same request to prevent the issuance of EB.
The first injunction was filed against the directors of Taekwang Industrial. It states that proceeding with the issuance of EB would violate the law and follow-up measures should not be taken. The second injunction targets Taekwang Industrial as a corporate entity. Similarly, the request is primarily to suspend the issuance of EB. The two injunction cases differ only in who the parties are and the legal basis upon which they rest, but the requests are ultimately the same.
Whether the two cases will be consolidated is expected to be decided by the time of the second injunction hearing scheduled for the 29th. If they are consolidated, the outcome may be announced as early as the beginning of next month.
The longer the decision on the injunction is delayed, the more anxious Taekwang Industrial becomes. Earlier, on the 22nd, Taekwang Industrial participated in the main bidding for the acquisition of Aekyung Industrial, partnering with T2 PE, a group of private equity funds, and Yuanta Investment, for an amount of 600 billion won.
Even if T2 PE and other financial subsidiaries of Taekwang Group invest, Taekwang Industrial holds the key to this acquisition, so it must raise over a hundred billion won through EB issuance. As of the end of the first half, Taekwang Industrial's cash and cash-equivalents amounted to about 350 billion won. Taekwang Industrial was initially planning to indirectly participate in the acquisition of Aekyung Industrial as an investor in the T2 PE fund, but instead decided to directly purchase equity in Aekyung Industrial in a joint investment format.