The National Tax Service on the 13th launched a tax investigation into Taekwang Industrial, a textile and petrochemical corporations.
On the day, the Investigation Bureau 4 of the Seoul Regional Tax Service was said to have sent staff to Taekwang Industrial's Seoul headquarters to secure documents and more. Investigation Bureau 4 handles non-regular tax audits, not the regular audits conducted every 4 to 5 years.
In the securities industry, some analysts said the probe may be related to Taekwang Industrial's move in June to sell its treasury shares before deciding to review the plan.
In June, Taekwang Industrial's board resolved to issue 320 billion won in exchangeable bonds (EB), using all of its treasury shares (24.41% equity) as collateral. The second-largest shareholder, Truston Asset Management, opposed the move. Truston said, "This decision is a trick and illegal attempt to evade the government's recently promoted mandatory retirement of treasury shares and shareholder protection policy." As the controversy grew, Taekwang Industrial has been reexamining whether to issue the EBs.
In the securities industry, some said Taekwang Industrial converted its treasury shares into EBs that could be monetized later to avoid the mandatory retirement of treasury shares being pushed by the Lee Jae-myung administration. Issuing EBs backed by treasury shares as collateral has the same effect as corporations conducting a third-party paid-in capital increase. By contrast, when corporations retire treasury shares, they cannot secure cash. Existing stock investors can see a benefit from a rise in share value as the number of shares in circulation decreases.
Taekwang Industrial says it decided to issue EBs to invest in new businesses. In September, Taekwang Industrial, together with T2 Private Equity and Yuanta Investment, was selected as the preferred bidder to acquire Aekyung Industrial, so it also needs acquisition funds. Taekwang Industrial plans to shoulder 235 billion won out of the total 470 billion won acquisition price.