[Why&Next] Ssangbangwool Declares 'Group Disbandment'... Will Each Survive Independently?

Before the Exchange's Delisting Review...
First Broke the 'Gwangrim to Ssangbangwool' Link
Independent Management...
The Challenge of Improving Performance
"All Circular Shareholdings Resolved"...
Uncertainty Remains Whether Ssangbangwool Can Shed Its Label

The Ssangbangwool Group has declared a 'complete dismantling' and has entered an independent management system for its affiliates. As the group faltered due to the suspension of stock trading of major affiliates amid embezzlement charges against former Ssangbangwool Group Chairman Kim Seong-tae, who was involved in the 'North Korea remittance' case, each affiliate has begun to fend for itself. However, since Ssangbangwool Group has a complex circular shareholding structure, it is expected that full independent management of each affiliate will take time.

According to the Financial Supervisory Service's electronic disclosure system on the 9th, underwear company Vivian announced that its largest shareholder changed to Ssangbangwool earlier this month. Initially, Vivian's largest shareholders were Ssangbangwool and Gwangrim, but Gwangrim sold all 1,146,340 shares (3.85%) of Vivian it held to Ssangbangwool. As a result, Ssangbangwool's stake in Vivian increased from 13.46% to 17.31%.

Before the Exchange's Delisting Review... Broke the 'Gwangrim → Ssangbangwool' Link First

This is part of the recent dismantling declaration of Ssangbangwool Group. Ssangbangwool Group had a circular shareholding structure linking the underwear company 'Ssangbangwool (renamed Try) → Vivian → IT solution and cloud specialist Dimoa → entertainment company NSE&M (formerly IOK) → cosmetic company Jayjun Cosmetic → special equipment manufacturer Gwangrim → Ssangbangwool.'

Earlier, Gwangrim broke this circular shareholding chain by selling its Ssangbangwool shares. Gwangrim was the largest shareholder holding 632,297 shares (12.04%) of Ssangbangwool, but last month sold these shares for 7 billion KRW to Segye Prime Development. Subsequently, Ssangbangwool changed its company name to 'Try.' Segye Prime Development is a real estate rental company, with Jung Un-ho, CEO of Nature Republic, holding a 40% stake.

This share sale was made ahead of the KOSDAQ Market Committee's review to decide whether to delist Gwangrim. Earlier, in February 2023, Gwangrim was suspended from trading by the Korea Exchange after it was revealed that former Chairman Kim and then Ssangbangwool Group Chairman Yang Seon-gil embezzled and breached trust involving 1.8 billion KRW. For KOSDAQ-listed companies, if embezzlement or breach of trust exceeding 1 billion KRW occurs, they are subject to a substantial review of listing eligibility and face delisting scrutiny. Ssangbangwool was also suspended from trading in July 2023 due to embezzlement and breach of trust charges (amounting to 9.8 billion KRW) against former Chairman Kim Seong-tae.

Subsequently, in December 2023, the Exchange granted Gwangrim a 12-month improvement period, and Gwangrim submitted an improvement plan last December after the period ended. On the 23rd of last month, the Exchange decided to continue the review (postpone the delisting decision) for Gwangrim instead of delisting. The Exchange's Listed Disclosure Committee also decided to re-examine Ssangbangwool.

Therefore, the recent dismantling declaration of Ssangbangwool Group is interpreted as a strategic move to resume trading for the two companies. Ssangbangwool Group is attempting to break the link between Gwangrim and Ssangbangwool in its circular shareholding structure and guarantee independent management of affiliated companies to escape Ssangbangwool Group's legal risks. A securities industry insider said, "Since the reason for the trading suspension of Gwangrim and Ssangbangwool at the Exchange was embezzlement and similar charges, the Exchange viewed owner risk as the biggest problem and requested strong improvements."

Independent Management... The Challenge of Improving Performance

Ssangbangwool Group expects that its affiliates can improve their poor performance through independent management. In fact, major affiliates have significantly shrunk in scale while suffering legal risks such as embezzlement and breach of trust by the owner.

The underwear business Ssangbangwool (Try) recorded cumulative sales of 61.4 billion KRW (separate basis) in the third quarter of last year, down about 4 billion KRW from 66.5 billion KRW the previous year. Operating profit turned to a loss of 600 million KRW. The annual performance decline continues, with Ssangbangwool recording sales of 92 billion KRW in 2021, 98.4 billion KRW in 2022, but decreasing to 88.4 billion KRW in 2023.

Jung Un-ho, chairman of Segye Prime Development, which became the largest shareholder of Ssangbangwool, is envisioning synergy between the beauty (Nature Republic) and fashion businesses. The plan is to strategically utilize each company's distribution and production channels to expand business into the global market.

Nature Republic is expanding brand awareness by entering online and offline channels in North America, Japan, and the Middle East. At Costco in the U.S., it targets local customers of all ages with premium cosmetics containing herbal ingredients, and on Amazon, it offers cost-effective color cosmetics. Since last year, it has actively entered the Middle Eastern market. It operates standalone offline stores in Bahrain, Oman, and Dubai, and has entered various distribution networks in Qatar, Iraq, Turkey, and Iran.

However, Nature Republic's performance is declining. As of the third quarter of last year, cumulative sales were 87.4 billion KRW, and operating loss was 4.3 billion KRW, compared to the previous year (sales 107 billion KRW, operating loss 200 million KRW), with sales decreasing and operating losses increasing.

The performance decline of special equipment manufacturer Gwangrim is even steeper. As of the third quarter of last year, cumulative sales (separate basis) were 53.6 billion KRW, down 40 billion KRW from 95.3 billion KRW the previous year. Operating profit also decreased from 9 billion KRW to 2.6 billion KRW. Gwangrim is determined to improve performance by expanding into overseas markets. It plans to recover its market share in the Russian hydraulic crane market and expand overseas sales channels to become a global special vehicle company. The upcoming signing of a memorandum of understanding (MOU) with the Ukraine Reconstruction Council related to the Russia-Ukraine war is also positive.

A Ssangbangwool official explained, "Each company will strengthen products, expand distribution, and establish brands through business diversification and strategic changes," adding, "We will completely break away from the past identity and continue an independent path."

"All Circular Shareholdings Resolved"... Whether Ssangbangwool Can Shake Off Its Label Is Uncertain

Ssangbangwool Group plans to continue working so that each company can establish an independent management system, starting with Gwangrim. Just as it settled the shareholding relationship between Gwangrim and Ssangbangwool, it aims to resolve all shareholding relationships linking 'Ssangbangwool (largest shareholder Segye Prime Development) → Vivian → Dimoa → NSE&M → Jayjun Cosmetic → Gwangrim' to achieve management normalization for each company. Negotiations regarding affiliate shares with Segye Prime Development, which acquired Ssangbangwool, are also underway.

However, there are concerns that it remains to be seen whether each affiliate will establish itself as an independent company after shareholding restructuring, as suspicions have been raised that KH Group effectively supported the 7 billion KRW funds used by Segye Prime Development to acquire Ssangbangwool shares. Last month, Nature Republic issued convertible bonds (CB) worth 7 billion KRW to refinance short-term borrowings (10.3 billion KRW) borrowed from Segye Prime Development. The maturity date of the bonds was June 28, 2025. The bondholder was Bivione Union, a subsidiary of KH Philux, an affiliate of KH Group.

KH Group is a frequent investor in Ssangbangwool Group affiliates and has participated in CB issuances for Gwangrim, NSE&M, and others. KH Group Chairman Bae Sang-yoon is known to maintain a close economic relationship with former Ssangbangwool Group Chairman Kim Seong-tae and is considered a close associate.