The Korea Corporate Governance Forum stated on May 19 that the exchangeable bond (EB) issuance and acquisition agreement between Hanjin Group and LS Group constitutes an act that infringes upon shareholder interests.
On May 16, LS announced that it would issue EBs worth 65 billion KRW to Korean Air to raise funds for debt repayment. These EBs are based on 387,365 registered common shares of LS. Korean Air will acquire these EBs and may convert them into LS shares within five years.
On the same day, the Governance Forum explained in a commentary, "Although treasury shares do not have voting rights, as seen in 2015 when KCC secured voting rights by purchasing Samsung C&T's treasury shares during the merger between Samsung C&T and Cheil Industries, voting rights can be revived when treasury shares are sold to a third party." The forum added, "Through the EB issuance, LS has secured Korean Air as an ally."
The forum further emphasized, "Selling treasury shares to allies under the pretext of collaboration to solidify control is unfair," and stated, "Defending control should be achieved through legitimate means, such as maintaining a high share price and high valuation."
The Governance Forum stressed that such actions constitute a breach of directors' fiduciary duty to shareholders and called for the passage of amendments to the Commercial Act by the next administration.
The forum stated, "Disposal of treasury shares is similar in nature to a paid-in capital increase, but a donation is essentially granting shares free of charge," and added, "This latest transfer appears to violate directors' fiduciary duty to shareholders. Amendments to the Commercial Act are urgently needed in the next government to protect general shareholders."
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