[Gi-ro's Merchant] THE E&M② Allegations of Low-Price Sale of Vessel CB to Shin Hwan-ryul's Affiliate

Only About Half of The E&M Purchase Price
Company States "Did Not Know Relationship with CEO Shin"

[Asia Economy Reporter Jang Hyowon] The KOSDAQ-listed company THE E&M has been found to have sold Vessel's convertible bonds (CB) at a low price to a company closely related to THE E&M CEO Shin Hwan-ryul after acquiring Vessel. The conversion price of these CBs is about half the price at which THE E&M purchased Vessel's shares. In other words, THE E&M acquired Vessel's shares at a high price, while the company related to CEO Shin acquired them cheaply.

According to the Financial Supervisory Service's electronic disclosure on the 21st, Vessel resold 3.15 billion KRW face value of its 6th series CB to ‘JHE&M’ on the 17th. The 6th series CB was issued in April 2021. Vessel had held these after purchasing them twice in December 2021 and May 2022.

The conversion price of this CB is 4,109 KRW. The conversion period has already arrived, so it can be converted into shares. JHE&M acquired this CB at about a 5% premium for 3.3 billion KRW, effectively buying Vessel shares at 4,315 KRW per share.

As of the 17th, Vessel's closing price was 6,100 KRW. If JHE&M immediately converts this CB into shares and sells them, it could realize a profit of around 40%. In contrast, THE E&M purchased the shares at a much higher price than JHE&M's acquisition price.

On the 6th, THE E&M acquired 1,663,536 shares from Vessel's former largest shareholder for a total of 13.7 billion KRW. The price per share was 8,206 KRW. Based on the contract date, this is analyzed as including a management premium of over 30%. Consequently, Vessel's stock price surged more than 20% on the day of the contract.

If THE E&M had directly acquired Vessel's 6th series CB instead of selling it to JHE&M, the average acquisition price per share could have been lowered to the 6,000 KRW range. However, THE E&M gave up on this and transferred the CB to JHE&M.

JHE&M, which acquired Vessel shares at about half the price of THE E&M, is a corporation closely related to CEO Shin Hwan-ryul of THE E&M.

This company was established in May 2018 with a capital of 10 million KRW, and CEO Shin Hwan-ryul served as an inside director until April 2020. When CEO Shin acquired a certain listed company in 2018, JHE&M, which was a newly established corporation at the time, had its CB acquired by that listed company, which also purchased 100% of its shares.

The Financial Supervisory Service is also closely monitoring acts where the largest shareholders or management of listed companies resell CBs at low prices to realize profits. Previously, on the 19th of last month, the FSS formed a ‘Private CB Joint Response Team’ to monitor unfair trading of private CBs.

The FSS explained that unfair trading continues to occur, such as manipulating stock prices after acquiring CBs, spreading false information to raise prices, and then converting to shares to gain unfair profits. An FSS official stated, “Methods of using CBs are diversifying, including cunningly siphoning off unfair profits by having the issuer repurchase CBs and then reselling them at low prices to major shareholders or third parties.”

Regarding this, a THE E&M representative said, “Before signing the acquisition contract for Vessel, there was a party that intended to acquire Vessel first, but in exchange for transferring the acquisition rights to THE E&M, there was a deal to resell Vessel’s CB to a place they designated,” adding, “We were not aware that CEO Shin Hwan-ryul had a relationship with JHE&M.”