AJ Networks shares, which jumped more than 20% in a month on expectations for "capital reduction dividends," plunged after the company decided to change the record date for dividends. As analysis emerged that the capital reduction dividends investors had anticipated this year were effectively off the table, investors rushed to dump shares.
Strictly speaking, it is hard to interpret the change to the dividend record date as a message that capital reduction dividends will not be paid. The company also said the change to the record date is a decision unrelated to capital reduction dividends. However, procedurally, it is impossible to carry out capital reduction dividends within the year.
The capital reduction dividends investors expect from AJ Networks are anticipated as early as March. This is because the capital reserve reduced through the capital reduction can be used as a source for dividends in accounting terms starting next year, and whether to pay dividends must also be approved at the shareholders meeting.
AJ Networks shares were weak on Dec. 5. The decline continued after a 6.67% plunge on the 4th.
The reason AJ Networks shares, which had been strong recently, turned lower is a disclosure the company released. On the 3rd, AJ Networks disclosed it would change the dividend record date from Dec. 31 to "a date set by the board of directors." The company added, "Under the amended articles of incorporation, the record date for settlement of account dividends for fiscal 2025 will be finalized through a board resolution in the first quarter of 2026," and "Even if you hold shares on Dec. 31, dividends will not be paid if you do not hold shares on the forthcoming record date for settlement of account dividends for fiscal 2025 that will be disclosed, so please take note."
After the disclosure, panic selling followed on the judgment that "dividends will not be paid this year." AJ Networks shares had surged more than 20% over the past month, largely on expectations for capital reduction dividends.
On Oct. 21, the company disclosed it would convene an extraordinary shareholders meeting to reduce its capital reserve. This is interpreted as a preparatory step for capital reduction dividends. As a result, the share price, which closed at 4,080 won on Oct. 21, jumped 9.6% to 4,470 won the next day. It then rose 22% to 4,980 won over the following month.
Capital reduction dividends are when part of the capital reserve is converted into retained earnings and paid to shareholders. Unlike ordinary dividends sourced from retained earnings, capital reduction dividends have the nature of corporations returning invested capital to shareholders, so the 15.4% dividend income tax is not withheld under the tax code.
Strictly speaking, the change to the dividend record date is unrelated to whether capital reduction dividends will be paid. An AJ Networks official said, "The disclosure aims to improve the dividend process so investors can decide on trading after first confirming the dividend amount, and it is unrelated to whether capital reduction dividends will be paid," adding, "The specific form and timing of dividends will be disclosed when decided by the board of directors."
That said, it appears capital reduction dividends will not be carried out this year as investors had hoped. Under corporate accounting standards, amounts transferred through the reduction cannot be used as dividend resources in the same year. As the proposal to reduce the capital reserve was approved at this extraordinary shareholders meeting, the point at which this amount will be reflected in the financial statements in accounting terms is next year. Therefore, the dividend resources can also be used only next year. Contrary to expectations, capital reduction dividends are unlikely to be executed within the year.
The actual timing of dividends is expected to be as early as March next year. At the regular shareholders meeting in March next year, there is a high possibility that the proposal to approve settlement of account dividends will be tabled simultaneously with the approval of financial statements reflecting the amount transferred through the reduction.
With this amendment to the articles of incorporation allowing the board to set the dividend record date, a likely method is that the board will first resolve the dividend amount and record date before the regular shareholders meeting, and the shareholders meeting will confirm them. Once all procedures are completed, dividends are paid within one month of the resolution.
If interim dividends, rather than settlement of account dividends, are chosen, the dividend timing could be pushed back further. As the record date for interim dividends is set at June 30 in the articles, the board can resolve on the dividends within 45 days of the record date. In that case, actual dividend payments would be possible only in July–August.
If AJ Networks proceeds with capital reduction dividends, the dividend per share is expected to be about 972 won. This is the amount obtained by dividing the 43.5 billion won reduced for dividend resources by the number of shares outstanding (total shares 45,252,759 minus 501,709 treasury shares), 44,751,050 shares. Based on the closing price of 4,550 won that day, the dividend yield is about 21%.
However, the view is prevailing in the market that the likelihood of AJ Networks paying dividends is high. This is because the largest shareholder needs to prepare funds for gift tax. On June 23, Vice Chairman Mun Deok-yeong gifted 4,380,462 shares each to his sons, CEO Mun Ji-hoe and Senior Managing Director Mun Seon-woo, raising the two sons' combined equity stake to 24.26% (10,977,640 shares). The gift tax the two sons must pay is estimated at about 9.8 billion won per person.
Interest pressure from stock-collateralized loans also supports the outlook that the company will move to pay dividends. As of Nov. 28, the amount borrowed with 13,269,584 shares (29.32%) pledged as collateral by Vice Chairman Mun and related parties was 28.14 billion won.