[At a Crossroads: Listed Companies] Geumyang② Chairman Ryu Gwangji Lending to Company Made Profits from 'High-Price Sales'... Earning 21 Billion KRW Annually

Sale at 100,000 KRW per share, securing 520 billion KRW then lending to the company
Unable to cover interest with main business... Will they use the paid-in capital increase funds?

Ryu Gwangji, Chairman of Geumyang.

Ryu Gwang-ji, chairman of Geumyang, is reported to be able to receive about 21 billion KRW annually from the company as interest. This is because he sold shares worth 520 billion KRW in cash when Geumyang's stock price hovered around 100,000 KRW per share and then lent the money back to the company. Although the current stock price has halved, Chairman Ryu has effectively created a structure where he receives dividends from the company without any loss.

In particular, Geumyang's core business performance is at a level where it is difficult to even cover the interest payments to Chairman Ryu, raising the possibility that future paid-in capital from rights offerings may be used to pay interest to Chairman Ryu.

According to the Financial Supervisory Service's electronic disclosure system on the 10th, as of the 30th of last month, Geumyang has borrowed 467.3 billion KRW from Chairman Ryu and related parties including KJ International and KY Eco. All related parties are corporations represented by Chairman Ryu.

From October last year to April this year, Chairman Ryu and related parties sold Geumyang shares and secured a total of 527.6 billion KRW in cash. The selling price ranged from 84,264 KRW to 107,323 KRW per share, selling 5,255,255 shares through off-hours trading. At that time, Geumyang's stock price was on the rise due to expectations related to the establishment of a secondary battery factory in Gijang, Busan, and mining development projects in Mongolia and Congo.

Chairman Ryu lent all the proceeds from the stock sales back to Geumyang. The company stated that the funds were needed for the construction of the secondary battery factory being built in Gijang, Busan. During the period, 57.4 billion KRW was repaid intermittently, leaving 467.3 billion KRW outstanding.

The interest rate on the loan is 4.5%. Based on the remaining loan amount, annual interest alone amounts to about 21 billion KRW. All interest payments are received by Chairman Ryu and related parties. After securing profits by selling shares at the peak, they lend the money back to the company and receive interest as if it were dividends.

While Chairman Ryu realized profits at the peak, small shareholders who invested at that time have not been able to avoid losses. Recently, Geumyang's stock price has been hovering around 50,000 KRW. Since Chairman Ryu's large-scale stock sale in April, Geumyang's stock price has continued to decline. Notably, on the 27th of last month, the company revised the expected sales revenue for this year from the Mongolian mining development project, which had been a positive factor for the stock price, down to about 1% of the original estimate.

The interest payments received by Chairman Ryu are difficult to repay with Geumyang's business performance. As of the end of the first half of this year, Geumyang recorded separate basis sales of 67.1 billion KRW, an operating loss of 14.6 billion KRW, and a net loss of 19 billion KRW. In particular, the net loss expanded about threefold compared to the previous year.

This was largely due to interest expenses. Geumyang spent 8.4 billion KRW on interest expenses in the first half of this year, a 157% increase from 3.2 billion KRW in the same period last year. Most of this interest was paid to Chairman Ryu. Chairman Ryu and related parties received 7.3 billion KRW in interest from Geumyang in the first half of this year, accounting for about 87% of the company's total interest expenses.

Geumyang stated in its securities registration statement, "Since last year, due to excessive loan amounts and deteriorating profitability in the foaming agent sector, we have not realized operating profits sufficient to cover interest expenses during the fiscal year. If financial restructuring to alleviate the loan burden is not achieved, the increased interest expense burden may act as a constraint on profitability improvement in the future."

Accordingly, there are concerns that funds raised from the ongoing 450 billion KRW shareholder rights offering could be used to cover interest expenses payable to Chairman Ryu. However, the company did not include any plans to repay interest to Chairman Ryu in the use of proceeds for this rights offering.

A Geumyang official said, "Mass production will begin next year, so there will be no cash flow problems," and added, "The reason for paying interest on loans from related parties (including Chairman Ryu) is that a normal interest rate must be applied under tax law, and these funds are expected to be used for tax payments related to the rights offering."