[Column] HL Holdings' Use of Treasury Stocks: A 'Trick'

New Foundation Established with 16 Billion Won Donation
"No Voting Rights Exercised for 5 Years" Explanation

HL Holdings has become the center of controversy. On the 11th, it was belatedly revealed as an issue that the company announced it would donate treasury shares amounting to nearly 4.76% of the total issued shares to a newly established foundation free of charge. The scale of the free donation is worth approximately 16 billion KRW.

The core of the controversy lies in the suspicion that the major shareholder intends to use the treasury shares acquired for the purpose of "enhancing shareholder value" in a way that benefits the major shareholder. Previously, the company acquired treasury shares twice in 2020 and 2021, citing shareholder-friendly policies to enhance shareholder value. However, the treasury shares held by the company were neither canceled nor actively managed, fading from shareholders' memories. Suddenly, the company decided, along with an unexpected disclosure, to donate 84% of the treasury shares it holds (560,720 shares) to the foundation free of charge. When treasury shares without voting rights are transferred to a public interest foundation, the voting rights are restored. Currently, the major shareholder, Chairman Jeong Mong-won, and related parties hold only 31.58% of the shares.

The decision-making process was also not smooth. The board meeting on the 11th was held at Mokpo New Port Operation at 9:30 AM, and the agenda resolved that day was disclosed after the market closed at around 5:21 PM. Regarding holding the board meeting in Mokpo, the company stated there was "no special reason," but there are suspicious aspects. The meeting was held not at the Seoul or Giheung headquarters or major business sites, but in the conference room of a subsidiary. Usually, when meetings are held out of town, they are often suspected to be for entertainment purposes. Multiple agenda items, including the controversial one, were raised, but the entire meeting lasted only an hour and a half. The board minutes attached to the Financial Supervisory Service's electronic disclosure only include the phrase "the board meeting was held following proper procedures."

In this situation, the response from HK Holdings only fueled shareholders' anger. As public opinion worsened, HL Holdings belatedly explained, "The foundation establishment is for mid- to long-term corporate value enhancement," and "the foundation will not exercise voting rights for five years." However, this excuse rather implies that the company may exert influence when establishing the foundation in the future. Even in private meetings with major shareholders, they gave answers difficult to understand logically, such as "We are the only major company without a foundation," or "This has been a long-prepared matter."

HL Holdings used the pretext of "donation," but looking at who benefits reveals the core of the issue. There is a clear reason why the market and public opinion have turned their backs. Overseas, the principle for treasury shares acquired for genuine shareholder value enhancement is to cancel them after purchase. If they truly wanted to donate through a foundation, they could have used the major shareholder's personal shares instead of treasury shares. Ultimately, this is nothing more than a trick to deceive investors.