[At a Crossroads] ① Joongang D&M's 5th Postponed Capital Increase... Risk of Additional Penalty Points

Major Shareholder's Funding Difficulties
Stock-Backed Loan for Rights Offering Participation Challenging
Additional Penalties if Delayed Until January Next Year
In Worst Case, Substantial Review of Listing Eligibility

[Asia Economy Reporter Jang Hyowon] Jungang D&M, a KOSDAQ-listed company, is increasingly likely to receive additional penalty points from the Korea Exchange (KRX) due to repeated delays in its paid-in capital increase. Having already received 7.5 penalty points, any additional points are expected to be a significant burden.

According to the Financial Supervisory Service’s electronic disclosure on the 18th, Jungang D&M postponed the payment date for its 5 billion KRW third-party allotment paid-in capital increase from the original November 16 to December 16, delaying it by one month. The reason for the delay was a request from the allottee.

Earlier in May, Jungang D&M resolved a third-party allotment paid-in capital increase worth 4 billion KRW targeting its largest shareholder, HF Networks. At that time, the new share issuance price was 728 KRW. This price was calculated by applying a 10% discount to the reference stock price of 809 KRW. The payment date was set for July 15.

However, when the payment date arrived, Jungang D&M extended the deadline to August 16. As the extended payment date approached, it was postponed twice more, first to September 16 and then to October 16. Meanwhile, on October 6, the capital increase amount was adjusted to 5 billion KRW, and the new share issuance price was changed to the par value of 500 KRW, reflecting the lowered reference stock price of 428 KRW.

A Jungang D&M representative stated, “The largest shareholder is experiencing difficulties in raising funds, causing continuous delays in the paid-in capital increase.”

HF Networks, the largest shareholder of Jungang D&M, secured a 14.31% stake through a 6.2 billion KRW third-party allotment paid-in capital increase in March last year. The entire capital for the increase was sourced from borrowings. In fact, HF Networks is a management consulting firm established last year with no sales revenue.

It is expected that funds for this capital increase will also be raised through borrowings. However, recently, Jungang D&M’s stock price has fallen below the issuance price of the paid-in capital increase, making stock-collateralized loans difficult. This is the reason for the funding difficulties.

If HF Networks fails to secure the 5 billion KRW capital increase funds by December 15 and delays payment beyond January 15 next year, Jungang D&M is highly likely to receive penalty points. According to KOSDAQ regulations, if the payment date is delayed by more than six months after the resolution of a paid-in capital increase, penalty points are imposed.

Jungang D&M already received 7.5 penalty points last month. This was due to the termination in August of a 15.2 billion KRW contract for member recruitment agency services signed in February with the Pungmu 1 District Regional Housing Association Promotion Committee and Pyeongnae Urban Development Co., Ltd.

If a KOSDAQ-listed company accumulates more than 15 penalty points within one year, its stock trading is suspended and it becomes subject to a substantive review of listing eligibility. Currently, Jungang D&M has already been designated as a management and investment caution stock.

Meanwhile, Jungang D&M is a company engaged in the manufacturing of PVC products and building materials, sales agency business, and telecommunications equipment and devices. On a consolidated basis for the third quarter of this year, it recorded cumulative sales of 19.9 billion KRW, an operating loss of 2.9 billion KRW, and a net loss of 2.7 billion KRW.