① National Treasure, Hit by Karis and Heung-A Shipping... Buxi Also Faces 'Challenges'

[Asia Economy Reporter Jang Hyowon] Kukbo (formerly Karis Kukbo), a KOSPI-listed company, has acquired a ride-hailing company ‘Buksi’. This is a new business chosen after failing to collaborate with Karis and failing to acquire Heung-a Shipping.

However, Buksi’s situation is not easy either. Kukbo does not have much reserved cash to invest, and Buksi itself faces continuous controversy due to its business model being similar to ‘Tada’.

◆ Consecutive Failures with Karis and Heung-a Shipping... Stock Price Slashed to One-Quarter

According to the Financial Supervisory Service’s electronic disclosure on the 11th, in August last year, the polyvinyl chloride (PVC) guardrail company ‘Karis’ became the largest shareholder of Kukbo, a KOSPI-listed company. By investing a total of 6.9 billion KRW through a paid-in capital increase, Karis secured a 22.53% stake in Kukbo. Kukbo’s company name was also changed to ‘Karis Kukbo’.

After the acquisition, Karis announced it would proceed with a PVC guardrail installation project on the Uzbekistan president’s exclusive road and signed a PVC guardrail supply contract worth 4.7 billion KRW with Kukbo. Kukbo is a company engaged in freight truck transportation and cargo storage businesses. Nevertheless, it leased a PVC guardrail factory to manufacture products and supply them to Karis.

Ultimately, this contract fell through. According to the disclosure, Karis failed to fulfill obligations such as paying the intermediate payment. According to a Kukbo official, Kukbo had already spent about 4 billion KRW on PVC guardrail manufacturing.

Subsequently, Kukbo’s management decided to part ways with Karis and sought a new largest shareholder, conducting a third-party allotment paid-in capital increase worth 50 billion KRW targeting ‘Coresend’. Coresend is a limited liability company with a capital of 50 million KRW. It is essentially a special purpose company (SPC) created to pool multiple investors. Kukbo intended to use the funds invested by Coresend to acquire Heung-a Shipping.

In November last year, Kukbo signed a contract to acquire a 14.05% stake in Heung-a Shipping from Fairmont Partners, Realty DI Partners, and others, who were the largest shareholders of Heung-a Shipping, for 11.2 billion KRW. The plan was for Kukbo, specialized in land logistics, to enter the maritime logistics business through Heung-a Shipping and create synergy.

However, the acquisition of Heung-a Shipping also failed after only a 700 million KRW deposit was paid. A Kukbo official said, “The acquisition failed due to opposition from the Ministry of Oceans and Fisheries and creditors.” The Korea Exchange imposed 9 penalty points and a fine of 70 million KRW on Kukbo for revising disclosures due to the contract failure.

As contracts and mergers and acquisitions fell through, Kukbo’s stock price also plummeted. The stock price, which was above 8,000 KRW in early July last year, dropped about 71% to the 2,300 KRW range by the end of last year.

◆ Buksi Faces Deficits and Discord with Taxi Industry, ‘An Uphill Battle’

The company Kukbo turned to for a new lifeline, after only wounds remained, is ‘Buksi’. Established in 2015, Buksi operates a rental car van call service for 11-15 seat vehicles. It operates on a reservation basis similar to ‘Tada’.

In October last year, Kukbo acquired 4,008 shares from Buksi co-CEOs Lee Taehee and Lee Jaejin for 2 billion KRW. Including previously held shares, Kukbo now holds a total of 6,508 shares (34.18%), becoming Buksi’s largest shareholder. As of 2018, Buksi recorded sales of 300 million KRW and a net loss of 900 million KRW. It also posted losses of 780 million KRW and 640 million KRW in 2016 and 2017, respectively.

The market voices doubts about whether Kukbo, a deficit company, can provide full support to a startup requiring large-scale investment.

Kukbo has recorded operating losses on a separate basis for five consecutive years from 2014 to 2018. If it were a KOSDAQ company, it would meet the delisting criteria. As of the end of the third quarter last year, its cash equivalents were only 6.7 billion KRW. Moreover, last year, working capital loans and bonds surged, raising the debt ratio to 315%, an increase of 56 percentage points compared to before.

Furthermore, Buksi’s business model being similar to Tada, which is currently on trial, adds to the uncertainty. The day before, prosecutors requested a one-year prison sentence at the sentencing trial for Lee Jae-woong, CEO of Socar, and others on charges of violating the Passenger Transport Service Act. Depending on the court’s ruling, Buksi’s business success or failure will also be decided. In fact, taxi drivers in the Busan area are strongly opposing Buksi’s operations.

CEO Ha Hyun of Kukbo stated, “Buksi does not engage in roaming operations like taxis and received an official interpretation from the Ministry of Land, Infrastructure and Transport in 2017 that it is a lawful service,” adding, “We will grow the company by integrating Buksi’s mobility technology and transportation system into our existing land freight transportation business.”