SNT Holdings pointed out SMEC's finances and governance and the acquisition of WIA Machine Tools, and said it would limit investment in SMEC until trust in its overall accounting is restored.
According to the financial investment industry on the 20th, SNT Holdings presented its position at a meeting with SMEC minority shareholders on the 19th, laying out the main disputes that have recently erupted with SMEC.
First, it criticized that SMEC's revenue last year fell by 47.7 billion won from a year earlier, operating profit by 41.8 billion won, and net profit by 43.1 billion won, all turning to losses. It said an operating loss of 17.9 billion won and a net loss of 21.3 billion won are hard to attribute solely to cyclical factors.
It also raised questions about the scale of capital reduction. Total equity fell by 78.7 billion won from 173.6 billion won in the third quarter last year to 94.9 billion won at year-end, and given that funds flowed in through a paid-in capital increase and disposal of treasury shares, it means additional capital erosion occurred. SNT Holdings said, "The company is failing to fully explain the specific causes and accounting grounds for this exceptional level of change."
In particular, regarding the structure of the WIA Machine Tools acquisition, it argued that while it appears to be a co-investment, in substance a private equity fund secures control and the loss burden could be concentrated on SMEC. Although the Rilsen side secured a 65.2% equity stake and a majority on the board, SMEC is presumed to be solely responsible for guaranteeing priority returns at a high rate, it said.
SNT Holdings noted that if the capital reduction in the fourth quarter last year is related to this acquisition structure, it could be an issue of burden transfer. The transaction was designed on the premise of an initial public offering (IPO), but with the government's recent ban on duplicate listings, the likelihood of an IPO has fallen sharply, which could increase SMEC's burden.
For these reasons, SNT Holdings has not made additional equity purchases since Nov. last year. The company said this is "because reasonable questions across finance and accounting—such as suspicions over the unfairness of the WIA Machine Tools acquisition structure, internal transactions, accounting for overseas subsidiaries, and disposal of treasury shares—have not been resolved."
It also said that although it demanded access to accounting books and filed for an injunction to obtain related materials, it did not receive sufficient data. A formal inquiry sent on the 25th of last month on key terms of the WIA Machine Tools co-investment agreement also remains unanswered.
SNT Holdings said, "In a situation where core information that forms the basis of investment decisions is not provided, deciding on additional investment is not a responsible judgment for a listed company," adding, "This inevitably makes investment in SMEC limited."
Regarding future investment direction, SNT Holdings said it is necessary to conduct checks on overall management; verify the co-investment covenant and contract structure; confirm the appropriateness of accounting treatment; and investigate whether company assets were used for private purposes.
It also set out principles to enhance shareholder value, including refraining from financing that dilutes shareholder value; pursuing the retirement of treasury shares; improving opaque internal transactions; and strengthening continuous communication with shareholders.
On the labor-management council's opposition to a change in control, it said, "If a labor union is formed voluntarily to improve working conditions, there is no reason to oppose it, but using the formation of a labor union as a tool to defend the current management's control could act as a limiting factor in our investment in SMEC."