Issuance of 320 Billion KRW Exchangeable Bonds Backed by All Treasury Shares
Procedures Halted Following Truston's Injunction Request
Financial Supervisory Service Orders Correction... Company Says "We Respect Opinions"
Taekwang Industrial has decided to temporarily halt the procedures for issuing exchangeable bonds (EB) worth 320 billion KRW, which were to be backed entirely by its treasury shares. This decision comes after Truston Asset Management, the company’s second-largest shareholder, filed for an injunction with the court regarding the matter, and as financial authorities also raised concerns about insufficient information disclosure, prompting the company to step back.
On July 2, Taekwang Industrial announced, "We will suspend all subsequent procedures related to the issuance of EBs backed by our treasury shares until the court reaches a decision regarding Truston’s injunction request." The company added, "We will communicate closely with stakeholders, including minority shareholders and the labor union, and will respect their opinions," further stating, "We will thoroughly explain the background of the EB issuance, the need for funding, and market conditions, and will sufficiently collect feedback."
Previously, on June 27, Taekwang Industrial’s board of directors resolved to issue EBs using all of its treasury shares (representing a 24.41% stake) as the underlying asset. The total issuance was set at 320 billion KRW, and the market pointed out that this move would have an effect similar to a third-party paid-in capital increase. This is because, when the exchange rights are exercised, the treasury shares?which do not carry voting rights or receive dividends?would be transferred to external investors, potentially diluting the ownership stakes of existing shareholders.
Truston Asset Management argued that this decision may violate the Commercial Act and, on June 30, filed for an injunction with the Seoul Central District Court to stop the directors’ alleged illegal actions. Truston stated, "Disposing of treasury shares at just a quarter of their net asset value per share carries a high risk of breach of fiduciary duty," and warned, "If the EB issuance proceeds, it could result in irreparable damage, including infringement on shareholder interests, deterioration of corporate governance, and loss of market trust."
On July 1, the Financial Supervisory Service also ordered Taekwang Industrial to correct its filings for the 'decision to dispose of treasury shares' and 'decision to issue exchangeable bonds,' citing the omission of key information such as the counterparty to the treasury share disposal.
Taekwang Industrial stated, "We will respect the court’s decision and reflect the opinions of stakeholders in our future decision-making based on ongoing communication."
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