After the financial authorities signaled their intent to delist penny stocks (shares priced below 1,000 won), many such stocks have announced reverse stock splits in quick succession. But some stocks trading above 1,000 won are also pursuing par value reverse splits, saying they will reduce the number of shares in circulation, drawing investor attention. HLB Innovation is a prime example.
HLB Innovation recently decided on a par value reverse split to manage the number of shares in circulation at an appropriate level, saying the float had become excessively large. At a shareholders meeting on the 20th, the agenda item to change the par value due to the reverse split passed as originally proposed. As a result, the number of shares outstanding is set to decrease from about 148.04 million to about 29.6 million. A reverse split does not affect corporate value, but it raises the price as shares are combined.
As companies with share prices above 1,000 won also move to reverse split, investors are casting a suspicious eye. That is because there have been frequent cases in the past where companies raised their share price through a reverse split and then promptly conducted a paid-in capital increase for shareholders.
Representative cases include Taihan Cable & Solution and TELCON RF PHARMACEUTICAL. After deciding on reverse splits, they decided on shareholder-allotted paid-in capital increases a few months later. In May 2023, Taihan Cable & Solution decided on a 10-to-1 par value reverse split, saying it would reduce the float to stabilize the share price. But just seven months later, it decided on a shareholder-allotted paid-in capital increase, saying it would raise 500 billion won by issuing new shares to shareholders.
KBI Dong Yang Steel Pipe also decided on a shareholder-allotted paid-in capital increase after deciding on a reverse split last year, prompting continued complaints from shareholders. KBI Dong Yang Steel Pipe decided on a 2-to-1 par value reverse split through a shareholders meeting in July last year and, in just two months, decided on a shareholder-allotted paid-in capital increase.
When a shareholder-allotted paid-in capital increase is decided after a reverse split, shareholders suffer not-insignificant losses. That is because the number of shares outstanding decreases through the par value reverse split, pushing the price higher, and then new shares are issued again based on the higher price to raise funds.
However, HLB Innovation and Jaeyoung Solutec said they have no immediate plans for a paid-in capital increase.
An HLB Innovation official said, "We have secured 20 billion won in cash, and revenue is being generated, so we are not in a situation where we must raise funds immediately through a paid-in capital increase," but added, "There is a possibility that funds may be needed for the Verismo clinical trial, but it has not been decided whether the company will raise funds on its own right away or whether funding will be secured at the group level."