Reconstruction Theme for Ukraine... Sambutogeon, Whose Major Shareholders Have Also Withdrawn [Business & Issues]

Application for Court Receivership Leads to Trading Suspension from February 25
Frequent Changes in Largest Shareholder... Second Court Receivership
Audit Opinion Rejected in August Last Year... Financial Deterioration

Yonhap News

Sambutogeon, once known as a Ukrainian reconstruction-themed stock, has been suspended from trading since the 25th of last month after filing for court receivership. Despite graduating from its first court receivership in 2017, frequent mergers and acquisitions (M&A) led to changes in ownership, and recently the largest shareholder, DYD, also disposed of its shares and declared separation, resulting in an extremely deteriorated financial situation. With a debt ratio already exceeding 800%, the stock price had rebounded for a while as it was called a reconstruction-themed stock, attracting some investors, raising concerns about significant damage.

Ukrainian Reconstruction Theme Stock Halted... Trading Suspended Since the 25th

The stock price of Sambutogeon has remained at 918 won, the closing price on the day it filed for court receivership on the 24th of last month. After the auditor's opinion was rejected in the semi-annual report on August 14 last year, the stock price began to plummet, hitting an all-time low of 440 won during trading on September 9 last year. Subsequently, expectations for the Ukrainian reconstruction theme led to a rebound, with the stock price fluctuating between 900 and 1,000 won this year.

Sambutogeon began to be classified as a Ukrainian reconstruction-themed stock starting in 2023. In May of that year, the 'Ukraine Global Reconstruction Forum' was held in Poland, where some Korean construction companies participated along with then Minister of Land, Infrastructure and Transport Won Hee-ryong, and Sambutogeon was listed among the attending companies. Sambutogeon announced at the forum that it had signed a memorandum of understanding (MOU) for a smart city construction project in Horodoksi, western Ukraine, and thereafter emerged as a Ukrainian reconstruction-themed stock.

The stock price of Sambutogeon soared to the 5,000 won range in July 2023 but fell again as the prolonged war prevented reconstruction projects from being carried out. The recent renewed attention to the Ukrainian reconstruction theme was due to the Trump administration entering office and the intensification of ceasefire negotiations with Russia. However, the actual reconstruction performance is currently 'zero.'

Four Consecutive Years of Cumulative Losses and Debt Ratio Over 800%... Will a Second Court Receivership Be Possible?

Last November, Lee Jae-myung, the leader of the Democratic Party of Korea, held up a stock chart of Sambu Construction at an on-site meeting of the Korea Stock Market Revitalization Task Force held at the Korea Exchange in Yeouido, Seoul. At that time, Lee raised suspicions of manipulation regarding Sambu Construction's stock price. Photo by Yonhap News Agency

The main reason Sambutogeon filed for court receivership is its severe financial condition. Since recording an operating loss of 7.8 billion won in 2020, Sambutogeon has not reduced its losses, with 4.3 billion won in 2021, 80.7 billion won in 2022, and 78.1 billion won in 2023. As of the third quarter of last year, the cumulative operating loss was 67.7 billion won, marking four consecutive years of deficits.

As of the end of the third quarter last year, short-term borrowings maturing within one year amounted to 157.7 billion won, while cash and cash equivalents were only 6.9 billion won. The debt ratio also rose to 838.5%. Due to worsening management and financial conditions, employees' wages were delayed four times last year?in March, June, July, and August.

Because of this, political circles raised suspicions of stock price manipulation regarding Sambutogeon's stock price rebound last year as a Ukrainian reconstruction-themed stock. It is argued that a company in an irrecoverable financial situation cannot suddenly see a stock price rebound. On November 28 last year, Lee Jae-myung, leader of the Democratic Party of Korea, appeared at the 'Korea Stock Market Revitalization TF On-site Meeting' held at the Korea Exchange and revealed Sambutogeon's stock chart on his mobile phone, stating, "It rose 5.5 times from 1,050 won to 5,500 won. Anyone with a little experience in stocks can clearly see stock price manipulation," and "If a thorough investigation is conducted on who actually invested money in Sambutogeon, everything will come out."

With Sambutogeon embroiled in stock price manipulation controversy, whether rehabilitation proceedings will commence remains uncertain. Sambutogeon had already filed for court receivership once in 2015 and graduated from it in 2017. It is now applying for rehabilitation proceedings again after just eight years. If the court judges that the liquidation value is higher than rehabilitation, the company may be liquidated. The decision on whether to commence rehabilitation proceedings is expected to be made about a month later after document review at the Seoul Rehabilitation Court.

Largest Shareholder DYD Also Changes Ownership After Reckless M&A

Adding insult to injury, DYD, the largest shareholder of Sambutogeon, also suffered a severe financial deterioration and was eventually sold. The new owner of DYD is trying to sever ties by disposing of its shares in Sambutogeon.

DYD, a cosmetics brand operator that acquired Sambutogeon in 2022, saw a change in its largest shareholder on the 8th of last month. RegTech, a financial security solution company, completed a paid-in capital increase of 10 billion won, acquiring 14.58% of DYD's shares and becoming the new largest shareholder.

DYD's financial condition is as severe as Sambutogeon's. The cumulative net loss for the third quarter last year reached 44.5 billion won, nearly four times the 11.8 billion won net loss in the same period the previous year. As a result, total equity plummeted to 15.7 billion won, significantly below the capital stock of 39.2 billion won, leading to a partial capital erosion with a capital impairment ratio of 60%.

The main reason for DYD's deteriorated financial condition is widely regarded as its reckless acquisition of Sambutogeon. At the time of acquisition, Sambutogeon's total assets were 561.3 billion won, while DYD's were about 81.9 billion won. From DYD's perspective, it acquired a company about seven times its size. The acquisition contract was signed to purchase Sambutogeon's shares for 70 billion won, but DYD had only about 2.9 billion won in cash and cash equivalents at the time. Consequently, DYD raised various borrowings and paid the acquisition balance in full within nine months after signing the contract, becoming the largest shareholder.

Ultimately, DYD could not withstand the various borrowings and debts and began disposing of its Sambutogeon shares from August last year. DYD's stake in Sambutogeon, which was previously 11.49%, has now fallen to 3.48%. Due to the extremely deteriorated financial condition and the occurrence of consolidated losses from Sambutogeon, DYD is undergoing a liquidation process. On the 31st of last month, an extraordinary general meeting of shareholders was held, and an amendment to the articles of incorporation was made to delete all construction-related business purposes from the business objectives.