[Exclusive] Kookil Paper CEO Choi Woo-sik Hid Fact of Stock-Backed Loan

Pledged All Shares as Collateral Loan but Not Disclosed
Filed for Rehabilitation After Sale Announcement... 'Meoktwi' Controversy

Choi Woo-sik, CEO of Kugil Paper, who has sparked controversy over 'eating and running' after immediately entering rehabilitation proceedings following the sale of his shares, has been revealed to have taken out a loan using all of his shares as collateral without disclosing it. Failure to disclose stock-collateralized loans is a violation of the Capital Markets Act, and controversy is expected.

Choi Woo-sik, CEO of Kukil Paper.

According to the investment banking (IB) industry on the 16th, Choi Woo-sik, CEO of Kugil Paper, is understood to have borrowed about 29 billion KRW by using all 41 million shares (32.13%) he previously held as collateral. Approximately 12 billion KRW was borrowed from six domestic securities firms and two savings banks, and the remaining 17 billion KRW was borrowed from loan companies.

It has been confirmed that some of the financial institutions that lent the money recently exercised their collateral rights to recover the loan. For example, The Addition Currency Loan Company sold 6,115,000 shares through forced sale on the market between the 6th and 8th, recovering about 9.2 billion KRW.

However, CEO Choi did not disclose the loan secured by his shares. According to the Capital Markets Act, a person or entity holding 5% or more of a listed company's shares becomes a 'large shareholder reporting obligor.' Reporting obligors must disclose the fact of providing collateral when entering into a stock-collateralized loan agreement.

In 2021, the Financial Services Commission's Securities and Futures Commission confirmed that the largest shareholder of a KOSDAQ-listed company failed to disclose a stock-collateralized loan from a loan company and reported it to investigative authorities for violating the Capital Markets Act.

In particular, since CEO Choi holds more than 30% of the shares and pledged all of them as collateral, it is pointed out that he was required to disclose it. If the collateral rights are exercised, the largest shareholder status could change at once, potentially causing significant damage to minority shareholders.

Amid suspicions of hiding the fact of stock-collateralized loans, CEO Choi was recently embroiled in controversy over 'eating and running' related to the sale of his shares. On the 8th, CEO Choi disclosed that he would sell 31,885,000 shares (24.98%) of his holdings to DK One, a golf equipment company, at 1,118 KRW per share, totaling 35.7 billion KRW. Considering the previous day's closing price was around 1,900 KRW, the sale was made at a discount of more than 40%, applying a reverse premium. At that time, he received 9.8 billion KRW as a down payment and transferred 9,885,000 shares to DK One.

Moreover, on the same day, CEO Choi sold all the remaining 7,455,000 shares on the market at around 1,300 KRW per share. Combined with the forced sale by the loan company that provided the collateral loan, Kugil Paper's stock price closed near the lower limit that day. This led to suspicion in the market over the suspicious behavior, such as applying a reverse premium when selling controlling shares and selling his own shares on the market on the contract day.

In this atmosphere of growing unease, Kugil Paper's board of directors, including CEO Choi, suddenly announced on the 13th that they would apply for rehabilitation proceedings. Ultimately, Kugil Paper entered rehabilitation, and stock trading was suspended. Additionally, a situation arose where principal and interest payments on bonds worth 22 billion KRW were not made. Currently, there is even a request for disclosure regarding bankruptcy rumors. Multiple attempts to contact Kugil Paper for comment were unsuccessful.

Meanwhile, Kugil Paper, established in 1978, is a paper manufacturing company, and CEO Choi Woo-sik is the second son of founder Choi Young-cheol. After graduating from the Korea Military Academy and retiring as a major, he has served as CEO of Kugil Paper since 2003.