[비즈한국] Taekwang Industrial003240 is pursuing large-scale investments, including the acquisition of Aekyung Industrial018250. Although Taekwang Industrial attempted to issue exchangeable bonds (EB) to raise investment capital, the plan has been provisionally halted due to opposition from shareholders. If the company fails to secure the funds, its investment plans are expected to face significant setbacks. Some market observers suggest that if Taekwang Industrial ultimately fails to raise the capital, it might abandon the acquisition of Aekyung Industrial altogether.
On July 2, Taekwang Industrial announced, “We plan to invest approximately 1.5 trillion won for the acquisition and establishment of companies related to cosmetics, energy, and real estate development.” The company stated that this is “to reorganize its business structure and secure new growth drivers amid the downturn in the petrochemical and textile industries, as well as to secure competitiveness in these sectors.”
The company acquisition mentioned by Taekwang Industrial is believed to refer to the takeover of Aekyung Industrial. It is known that Taekwang Industrial has already been included in the shortlist of qualified bidders for the Aekyung Industrial acquisition. The issue is cash. It is reported that the investment capital Taekwang Industrial can currently deploy is less than 1 trillion won. To fund the 1.5 trillion won investment mentioned in its disclosure, the company must raise funds externally.
On June 27, Taekwang Industrial announced plans to issue exchangeable bonds worth 318.6 billion won. Exchangeable bonds are bonds granted with the right to be exchanged for shares of another company held by the issuer. The exchangeable bonds Taekwang Industrial intended to issue were to be backed by 24.41% of its own treasury shares.
A Taekwang Industrial representative stated, “The scale of investment to be executed by next year is expected to significantly exceed our current available investment funds,” adding, “We need an ‘all-in’ level of investment to enhance corporate value through business restructuring.”
However, Truston Asset Management, the second-largest shareholder of Taekwang Industrial, opposed the issuance. On June 30, Truston filed for an injunction in court to block the issuance. Truston stated, “The decision to issue exchangeable bonds based entirely on the company’s treasury shares not only damages shareholder value but also runs directly counter to the new government’s policy of protecting minority shareholder rights; therefore, we will take legal action, including an injunction lawsuit.”
Financial authorities also put the brakes on Taekwang Industrial’s issuance. The Financial Supervisory Service (FSS) requested a correction report regarding the issuance. The FSS explained, “As a result of our review of the submitted major business report, we have issued a correction order due to significant omissions regarding the counterparties of the issuance.”
Following the controversy, Taekwang Industrial temporarily suspended the issuance process. The market estimates the sale price of Aekyung Industrial to be between 600 billion and 700 billion won. It is not impossible for Taekwang Industrial to acquire the firm without issuing the exchangeable bonds. However, Aekyung Industrial is not the only item in Taekwang Industrial's investment plan. The company plans to invest approximately 500 billion won in its petrochemical and textile sectors. It also expects to spend significant funds on business restructuring, the demolition of decommissioned factory facilities, and personnel redeployment.
A Taekwang Industrial representative stated, “We plan to respect the court’s decision regarding Truston Asset Management’s injunction filing,” adding, “We intend to listen fully to the opinions of stakeholders and reflect them in future decision-making, including whether or not to proceed with the exchangeable bond issuance.”
If the company abandons the exchangeable bond issuance, it could potentially raise funds through corporate bond issuance, paid-in capital increases, or loans from financial institutions. However, Taekwang Industrial has long maintained a debt-free management policy. Even aside from this management style, recent interest rate conditions and the recession in the petrochemical industry make borrowing a heavy burden.
In fact, for Taekwang Industrial, issuing exchangeable bonds using treasury shares is an easy way to raise funds without the burden of interest rates. Former Taekwang Group Chairman Lee Ho-jin and his related parties hold a 54.53% stake in Taekwang Industrial. Even if treasury shares are transferred to a third party, it would not pose a major problem for Lee’s control. However, this could result in the dilution of other shareholders’ stakes, as treasury shares possess no voting rights but would gain them once transferred to a third party.
President Yoon Suk Yeol has been pushing for amendments to the Commercial Act. The main content of the proposed amendment is to expand the duty of loyalty of directors from just the ‘company’ to the ‘company and its shareholders.’ The amendment to the Commercial Act passed the National Assembly plenary session on July 3. In this climate, it is difficult for Taekwang Industrial to proceed with the exchangeable bond issuance while ignoring shareholder sentiment.
However, delaying the investments is also difficult. In December 2022, Taekwang Industrial announced plans to invest 10 trillion won in nurturing new businesses and improving factory facilities. Yet, two and a half years later, there has been no notable news regarding the investment. Some view the 10 trillion won investment plan with suspicion, questioning if it was truthful. If the company postpones investments again, criticism of Taekwang Industrial is likely to intensify.
Given the current situation, if Taekwang Industrial fails to raise funds externally, it is highly likely to adjust its investment plans. One of the options being discussed is abandoning the acquisition of Aekyung Industrial, as analysis suggests its value may not be as high as previously thought. Aekyung Industrial’s recent performance has been on a downward trend. Sales fell by 10.66% from 169.1 billion won in the first quarter of last year to 151.1 billion won in the first quarter of this year, and operating profit plummeted by 63.45% from 16.5 billion won to 6 billion won during the same period.
The future outlook is not positive either. Han Yoo-jung, a researcher at Hanwha Investment & Securities, assessed Aekyung Industrial, stating, “Due to sluggish domestic consumption and delayed inventory recovery in China, the company has seen a significant decline in earnings since the second half of 2024.” She added, “While it is growing in overseas markets other than China, the scale is still too small to offset the weakness in domestic and Chinese markets.”
The synergy between Taekwang Industrial and Aekyung Industrial is also considered uncertain. Aekyung Industrial’s main business is the manufacturing and sale of cosmetics and household goods. It is difficult to see a strong business connection with Taekwang Industrial, a petrochemical company. However, some argue that there is room for synergy. TRN, a Taekwang Group affiliate, operates the home shopping channel ‘ShoppingNT.’ Analysis suggests that there could be synergy if Aekyung Industrial’s products are sold via home shopping.
The aforementioned Taekwang Industrial representative explained, “If the issuance of exchangeable bonds falls through, we expect considerable difficulty in raising the funds necessary for the Aekyung Industrial acquisition,” adding, “We will first observe the court’s decision on the injunction before discussing future fundraising plans or the Aekyung Industrial acquisition strategy.”