Taekwang Industrial Fully Withdraws Controversial Exchangeable Bond Issuance Plan

(Seoul=Yonhap Infomax) Hak Seong Kim = Taekwang Industrial Co., a South Korean chemical and textile manufacturer, announced on the 24th that its board of directors has decided to fully withdraw its previously planned issuance of exchangeable bonds (EB) backed by treasury shares, following market controversy.

The company stated, "We required funding to pursue new business initiatives, and given the share price conditions at the time (June), issuing exchangeable bonds using treasury shares as underlying assets was deemed the most rational option." Taekwang Industrial added, "The legitimacy of this management decision was recognized when the court dismissed the injunction request filed by minority shareholders."

However, Taekwang Industrial explained that during the injunction proceedings, the company’s share price fell sharply and funding costs increased, leading to delays in negotiating issuance terms with counterparties as market conditions changed.

The company emphasized, "Considering the government’s policy stance on treasury share cancellations and the need to protect shareholder value, we determined that withdrawing the plan to dispose of treasury shares was appropriate."

Taekwang Industrial also clarified that the withdrawal of the exchangeable bond issuance will not affect its previously announced mid- to long-term investment plans.

The company said, "We are currently in the process of acquiring AK Holdings and Courtyard Marriott Hotel, and are pursuing business expansion in various sectors including real estate and shipbuilding." It added, "To secure the necessary funds, we are reviewing various options such as external borrowing, and will strengthen communication with stakeholders, including shareholders, to restore market trust."

In July, Taekwang Industrial announced plans to invest approximately 1.5 trillion won ($1.13 billion) by the end of next year in acquisitions and establishment of companies related to cosmetics, energy, and real estate development.

In June, the company faced shareholder backlash after deciding to issue 318.6 billion won ($240 million) worth of exchangeable bonds backed by all of its treasury shares (24.41%).

General shareholders, including Truston Asset Management, argued that the disposal of treasury shares was effectively equivalent to a third-party allotment capital increase, and opposed the move as Taekwang Industrial was selling treasury shares at a steep discount, with a price-to-book ratio (PBR) of just 0.2.

Although Taekwang Industrial prevailed in the injunction filed by Truston Asset Management to block the exchangeable bond issuance, the company continued to deliberate before ultimately deciding to withdraw the plan. (※For reference, see Yonhap Infomax’s article published at 15:57 on August 29, "'Amended Commercial Act No. 1'—Did Taekwang Industrial’s EB Treat All Shareholders Equally?")

A representative from Truston Asset Management welcomed Taekwang Industrial’s decision to withdraw the exchangeable bond issuance.

As of 10:43 a.m. KST, shares of Taekwang Industrial were trading at 790,000 won, up 1.67% from the previous session, outperforming the KOSPI’s 0.82% gain.

hskim@yna.co.kr

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