'Equity Shock' Doosan Infracore... Will Angry Small Shareholders Unite?

Stock Price Drops After KRW 800 Billion Capital Increase Announcement
Retail Investors Announce Collective Response on SNS

[Asia Economy Reporter Gong Byung-sun] Doosan Infracore, which has started anew as an affiliate of Hyundai Heavy Industries, is facing difficulties due to a rights offering. As the stock price falls, investors have announced organized actions.

As of 10:17 AM on the 14th, Doosan Infracore was trading at 10,200 KRW, down 200 KRW (1.92%) from the previous day. Doosan Infracore also fell 5.88% the day before.

The rights offering news disclosed on the 10th acted as a negative factor. Doosan Infracore decided on a rights offering worth 800 billion KRW. This amount is close to Doosan Infracore's market capitalization of 827 billion KRW as of the 13th. Youngsoo Han, a researcher at Samsung Securities, said, "The scale of the rights offering is larger than expected," adding, "Even if uncertainty eases, it is difficult to expect an improvement in investor sentiment."

The large-scale rights offering was decided because the risks related to Doosan Infracore China (DICC) were not properly resolved in the past. Financial investors (FIs), including Mirae Asset Global Investments, which acquired a 20% stake in DICC in 2011, tried to sell their shares to recover their investments after the initial public offering (IPO) was canceled. However, the sale did not proceed, and the FIs filed a lawsuit claiming that Doosan did not cooperate with the sale process. Although Doosan Infracore won the Supreme Court case in January, the tag-along rights corresponding to the 20% stake were recognized and had to be resolved. Tag-along rights allow a shareholder to request that when another shareholder sells their shares, they can sell their shares at the same price.

Accordingly, on the 20th of last month, Doosan Infracore decided to acquire the 20% stake in DICC for 305 billion KRW. From the perspective of Hyundai Genuine, the intermediate holding company of Hyundai Heavy Industries Group, this meant having to bear a cash outflow of 210 billion KRW just one day after acquiring Doosan Infracore. Additionally, a corporate tax of 200 billion KRW was incurred during the acquisition process of Doosan Infracore.

However, investors see Hyundai Heavy Industries as passing the acquisition costs onto retail investors. At the time of acquisition, synergy effects with Hyundai Construction Equipment, a subsidiary of Hyundai Heavy Industries, were expected, but the rights offering was carried out rapidly without considering the position of minority shareholders at all. Minority shareholders are preparing for organized responses by forming groups on social networking services (SNS) such as Naver Band.

Hwang Se-woon, a researcher at the Capital Market Institute, explained, "This rights offering is inevitable from the perspective of improving the financial structure," but added, "The scale is so large that even investors who anticipated the rights offering find it hard to accept, leading to collective action."