[At a Crossroads for Listed Companies] Haitron Systems, Other Corporations Sold Two Days Before Opinion Rejection④

[Asia Economy Reporter Jang Hyowon] Hightro Systems, a company listed on the Korea Exchange, received a disclaimer of opinion on its semi-annual report. It is analyzed that the company was hindered due to frequent changes in major shareholders and the issuance of convertible bonds (CB) since early this year, causing controversy. Even before receiving the disclaimer of opinion, the stock price plummeted, raising suspicions in some parts of the stock market.

Who is the Ultimate Controlling Party? ... The Whereabouts of CB Also ‘Unclear’

According to the Financial Supervisory Service’s electronic disclosure on the 18th, Hightro Systems received a disclaimer of opinion on its semi-annual report from the audit firm. As a result, Hightro Systems was designated as a management stock, and trading was suspended from the previous day until this day.

If a disclaimer of opinion is received during the year-end audit, it constitutes grounds for delisting, but a disclaimer of opinion on the semi-annual review is a reason for designation as a management stock. If the reasons for the disclaimer of opinion are not resolved by the end of this year, a disclaimer of opinion on the audit may also be received.

The reason Hightro Systems received the disclaimer of opinion is primarily that there is no evidence to verify the substance of transactions related to the CB issuance. Additionally, the possibility of collecting outstanding receivables related to this transaction was not identified.

On February 10, Hightro Systems issued the 22nd series of CB worth 15 billion KRW targeting ‘KB Partners.’ KB Partners is known as a corporation related to a bond dealer named Mr. K. Mr. K is famous as a financier who funds multiple no-capital mergers and acquisitions (M&A) of listed companies. In fact, Kwon Hyukjin, the auditor appointed for Hightro Systems’ audit earlier this year, has repeatedly appeared in companies invested in by Mr. K.

According to market insiders, although the 22nd series CB is disclosed as electronically registered, it is actually issued in physical form and traded in the bond market. Therefore, it is presumed that the issuance process and payment of funds for the CB have not been verified.

The second reason for the disclaimer of opinion is the lack of grounds to accurately determine the scope of related parties and the transactions. This is interpreted as a failure to identify the ultimate controlling party.

This year, Hightro Systems has disclosed changes in major shareholders four times. On March 12, former major shareholder and CEO Choi Youngdeok announced that he had signed an over-the-counter sale contract to sell all his shares to ‘Dream High Private Equity Investment Partnership (Dream High).’

Subsequently, the major shareholder changed to Han Sehee, who also sold shares, making IDIS Holdings, which previously held 6.79%, the major shareholder. Then Dream High received shares from former CEO Choi and became the major shareholder but immediately dissolved the fund, returning IDIS Holdings to the position of major shareholder. According to the industry, Dream High was unable to arrange the remaining payment.

Although the shares of former CEO Choi acquired by Dream High were dispersed, Dream High secured management rights. At the regular shareholders’ meeting at the end of March, Dream High’s personnel, including CEO Lim Jeonghun, former CEO Kim Donggeon, outside director Kwon Jeongtaek, and auditor Kwon Hyukjin, were appointed. They are still managing Hightro Systems.

Other Corporations’ Net Selling of 139,990 Shares Before Disclaimer of Opinion

What is noteworthy is that Hightro Systems’ stock price showed a sharp decline even before the disclaimer of opinion was disclosed.

Two trading days before Hightro Systems announced the disclaimer of opinion, on the 12th, the stock price fell more than 25% intraday. The opening price started slightly lower than the previous day, but a sharp decline occurred during the day.

What is unusual is that on that day, for the first time in about 15 trading days, other corporations showed net selling. They sold 139,990 shares. There have been only three trading days this year when other corporations net sold more than 100,000 shares. Also, institutions, which had almost no trading, showed net selling of 4,999 shares.

An official from the financial investment industry said, “It is necessary to investigate whether there was insider trading as a large volume of shares was sold before the company’s adverse disclosure.”

Repeated attempts to contact the company for comment were unsuccessful.

Meanwhile, Hightro Systems is a security equipment company manufacturing products such as cameras, storage devices, monitors, and controllers, including CCTV. In the second quarter of this year, it recorded sales of 7 billion KRW, operating profit of 100 million KRW, and a net loss of 6.1 billion KRW.