Daekyo, known for its study workbooks "Noonnoppi," decided to sell its treasury shares to raise funds for dividends for unlisted parent Daekyo Holdings. The counterparty for the treasury share sale is Daekyo Holdings. With no clear improvement in earnings yet large dividends taking place, and with the sale of treasury shares leading to an expanded control for the largest shareholder, critics say the listed company may be excessively supporting the largest shareholder.
Daekyo said on the 28th that its board meeting on the 27th decided to sell about 1.77 million treasury shares to Daekyo Holdings in an off-market deal. The sale price is 1,565 won per share, and the company will secure 2.77 billion won by disposing of the shares. Daekyo currently holds 18.1% in treasury shares (including exchangeable bonds issued in Oct. last year), and the amount to be sold this time equals 11.5% of the treasury shares held.
On the surface, the company cited "securing funds for new-business investment" as the purpose of the treasury share sale. But the actual cash flows differ somewhat from the stated purpose. According to the company, all of the money Daekyo secures by selling its treasury shares will be used entirely for cash dividends.
The company said, "As a holding company, Daekyo Holdings has decided to reinvest the full amount of dividends it receives when we implement cash dividends as funding for our new business initiatives," adding, "We resolved to raise the funds by selling our treasury shares to Daekyo Holdings."
A capital market official said, "This means a listed company will not invest the funds secured by selling treasury shares directly, but will pay them out as dividends to the parent, which will then reinvest in the subsidiary. This is not a typical case."
This has prompted criticism that the listed company is ultimately supporting the controlling shareholder by selling treasury shares. If Daekyo proceeds with dividends, the biggest beneficiaries will be the largest shareholder Daekyo Holdings and the owner family.
Daekyo's largest shareholder is Daekyo Holdings, which owns 54.51% equity; including the owner family's equity, the total reaches 66.56%. Excluding the 18.1% in treasury shares, which do not receive dividends, minority shareholders hold only 12.7%.
Daekyo Holdings will receive dividends while also being able to strengthen its control over the subsidiary. Daekyo Holdings is an unlisted company in which Chair Kang Young-joong owns 84% equity, and the owner family holds the remaining more than 14%. In effect, the listed Daekyo is creating a structure favorable to the owner family's unlisted holding company.
Moreover, Daekyo's latest treasury share disposal appears inconsistent with the intent of the Commercial Act revision. Under the third amendment to the Commercial Act passed by the National Assembly this year, listed companies must cancel newly acquired treasury shares within one year and cancel treasury shares already held within one year and six months. However, if needed for business purposes such as employee compensation, adoption of new technology, or improving the financial structure, companies may dispose of treasury shares without cancellation upon approval at a shareholders meeting.
Meanwhile, Daekyo's stock price has fallen to an all-time low. Listed on the main board in 2004, Daekyo's stock once topped 10,000 won, but it has steadily declined over the past 10 years and has now plunged to around 1,500 won.
Daekyo said of the treasury share sale, "We aim to maximize shareholder returns by simultaneously pursuing shareholder payouts through cash dividends and enhancing our corporate value through responsible management by the holding company," adding, "We plan to quickly secure the funds needed for management and use the incoming funds as investment resources for new businesses to secure future growth drivers."