[IPO Spotlight] The Biggest Hurdle for Winia Aid's Listing is 'Major Shareholder Accounting Fraud'

[Asia Economy Reporter Park So-yeon] Winia Aid aims to be listed on the KOSDAQ within this year. To achieve a successful initial public offering, the company must meet listing requirements such as corporate transparency. However, challenges are expected as Winia Dimchae, the largest shareholder of Winia Aid, recently faced strong administrative actions including referral to the prosecution for violations of accounting standards.

◇Largest Shareholder Winia Dimchae Faces Prosecution Investigation Over Accounting Fraud

The largest shareholder of Winia Aid is Winia Dimchae. At the end of last year, Winia Dimchae additionally acquired 234,912 shares of Winia Aid from Winia Electronics for approximately 36.9 billion KRW. As a result, Winia Dimchae's stake increased from 27.43% to 51%. Winia Dimchae stated that the purpose of acquiring Winia Aid shares was to "secure the status of the largest shareholder."

Recently, Winia Dimchae was found to have inflated sales by 67 billion KRW over four years from 2015 to 2018, drawing a heavy penalty from financial authorities. The Securities and Futures Commission under the Financial Services Commission imposed administrative measures last month, including a two-year designation of auditors, a recommendation to dismiss the financial officer responsible at the time of the accounting violations, and a fine of 10 million KRW on the former CEO. Additionally, the former CEO and the corporation were reported to the Supreme Prosecutors' Office for investigation.

Winia Dimchae was found to have overstated sales and cost of sales by arbitrarily adjusting returned and exchanged products in the company’s computer system from 2015 to 2018. Samil Accounting Corporation, which conducted external audits for Winia Dimchae, was penalized with a fine of 306 million KRW and an additional 20% contribution to the joint compensation fund. Dongmyung Accounting Corporation was ordered to contribute an additional 30% to the joint compensation fund and was restricted from auditing Winia Dimchae for two years.

The financial authorities judged that there was "intentionality" in Winia Dimchae's accounting fraud. The motivation for accounting violations is classified into three levels: intentional, gross negligence, and negligence, with intentional being the most severe. It was also pointed out that the accounting manipulation occurred from 2015, just before Winia Dimchae’s listing, raising allegations of unfair trading under the Capital Markets Act.

◇Passing Listing Review Hinges on Legitimacy of Largest Shareholder

In the financial investment industry, concerns are rising that Winia Aid may fail to meet listing review requirements such as ▲continuity of corporate management ▲management transparency and stability ▲investor protection due to the accounting fraud revealed in its largest shareholder Winia Dimchae. To pass the listing review, corporate transparency must be ensured, and among the detailed review criteria, the legality of the largest shareholder could become an issue.

A financial investment industry official said, "To get listed, a suitability review of the major shareholder is conducted, and if problems arise, there may be a need to change the major shareholder. From the perspective of institutions, they cannot participate in demand forecasting for companies with major shareholder uncertainties, and even if they overlook it, the 51% stake held by the largest shareholder poses an overhang risk (potential excess shares that could flood the market at any time), creating supply-demand pressure."

Meanwhile, Winia Dimchae’s stock trading is currently suspended, and a decision on whether to conduct a substantive review of listing eligibility is scheduled for the 19th. As of the end of the third quarter last year, Dimchae Holdings held 47.41% of Winia Dimchae’s shares. Park Young-woo, chairman of Daeyu Winia Group, also holds 2.8%. The largest shareholder of Dimchae Holdings is Daeyu A-Tech (89.13%). Chairman Park Young-woo controls affiliates through Donggang Holdings, an unlisted company at the top of Daeyu Winia Group’s governance structure. The structure is as follows: Donggang Holdings -> Daeyu Holdings -> Daeyu A-Tech -> Dimchae Holdings -> Winia Dimchae -> Winia Aid.