Kukil Paper, Allegations of False Management Rights Transfer... 16 Million Shares Pledged as Collateral Flooded

Transfer of Management Rights Shares Matches Short Selling Volume and Bond-Collateralized Volume
DK One, with Assets of Only 900 Million KRW, Faces Difficulty Raising 35.7 Billion KRW

As Kukil Paper shocks the market with its sudden entry into rehabilitation proceedings, allegations have emerged that the largest shareholder's management rights transfer contract is also false. In fact, when combining the shares CEO Choi Woo-sik (pictured) of Kukil Paper transferred through the management rights transfer and the shares subjected to forced sale, the total matches the amount pledged as collateral for private loans, intensifying suspicions.

According to the Financial Supervisory Service's electronic disclosure on the 20th, Kukil Paper announced that on the 8th, CEO Choi Woo-sik signed a contract to transfer 31,885,000 shares (24.98%) of his own stock to a corporation called 'DK One' at 1,118 KRW per share, totaling 35.7 billion KRW.

On the day of the contract, CEO Choi first transferred 9,885,000 shares to DK One. The remaining shares were scheduled to be traded on the 29th. According to a disclosure two days later on the 10th, CEO Lee Kyung-beom of The Addition Currency Lending forcibly sold 6,115,000 shares of CEO Choi's stake.

The shares transferred from CEO Choi in these two transactions total exactly 16 million shares. According to the investment banking (IB) industry, 16 million shares correspond to the number of shares CEO Choi borrowed about 13 billion KRW from a lending company and pledged as collateral. CEO Choi had previously sparked controversy by not disclosing the stock-collateralized loan.

It is also estimated that all 9,885,000 shares transferred under the name of management rights transfer were sold on the market. Looking at the sales status by investor type in Kukil Paper, on the 8th, 1,770,185 shares were net sold by other corporations, and on the following day, the 9th, 8,115,349 shares were sold. Combined, this totals 9,885,534 shares, almost exactly matching the number of shares CEO Choi transferred to DK One.

Another reason to suspect the management rights transfer disclosure is false is the corporation named DK One. As of 2021, DK One is a golf equipment company with sales of 500 million KRW and a net profit of 3 million KRW. Its total assets amount to only 900 million KRW.

Currently, it rents a logistics warehouse in Anseong-si, Gyeonggi-do, different from its registered address, and sells golf equipment online. According to insiders, Kim Jeong-ran, the largest shareholder and CEO of DK One, rarely visits the company. It is also understood that the company’s performance is not sufficient to raise 35.7 billion KRW.

Furthermore, the fact that Kukil Paper suddenly announced its intention to apply for rehabilitation proceedings on the 13th, just five days after the management rights transfer contract, further fuels suspicions of a false contract. Due diligence is usually conducted before acquiring a company, and there is no reason to acquire a company that would enter rehabilitation within days after the contract.

As a result, the market’s curiosity is growing about why CEO Choi would engage in such behavior if the largest shareholder transfer contract is false. Some speculate it was to facilitate an easier forced sale. Typically, announcements of largest shareholder sales are perceived as positive news.

In fact, The Addition Currency Lending began forced selling CEO Choi’s shares from the 6th. About 1.5 million shares were sold on the market that day, causing the closing price to drop by 6%. On the following day, the 7th, the price fell about 5% during trading. Despite only partial sales, the sharp price decline may have made it difficult for the forced seller to recover principal and interest. Attempts to contact Kukil Paper for their position on these suspicions were unsuccessful.

Meanwhile, CEO Choi Woo-sik of Kukil Paper is the second son of the founder. After graduating from the Korea Military Academy and retiring as a major, he has served as CEO of Kukil Paper since 2003. The founder, Chairman Choi Young-cheol, is the chairman of Songdam Academy, which operates Yongin Arts and Science University.