[Column] Hyungji Elite Uses Shareholders' Money to Repay Debt

Paid-in Capital Increase of 21.3 Billion Won Decided
Nearly 60% of Total Shares to Be Newly Issued
Fashion Group Hyungji to Subscribe to 50% of Its Allocation
Participation Amounts to Only 7% of Total Funds Raised

Hyungji Elite is conducting a large-scale paid-in capital increase worth 21 billion won. Most of the funds raised are expected to be used for payment of accounts payable and debt repayment. The company is likely to face criticism for "using shareholders' money to pay off debt."

The largest shareholder, Fashion Group Hyungji, plans to participate with an investment of 1.5 billion won, which accounts for only about 7% of the total.

According to the Financial Supervisory Service's electronic disclosure system (DART) on November 7, Hyungji Elite announced that it will carry out a paid-in capital increase by way of a rights offering for existing shareholders, followed by a public offering of forfeited shares, to raise 21.3 billion won for working capital and debt repayment. The number of new shares to be issued is expected to be 23 million, with an expected issue price of 928 won per share.

Of the funds raised, 15.8 billion won will be used as working capital, with 10 billion won allocated for payment of accounts payable. Accounts payable refers to short-term liabilities for goods or raw materials purchased but not yet paid for. The remaining 5.8 billion won will be used for purchase and production payments, which generally refers to payments made for raw materials, parts, and equipment necessary for corporate production activities.

The remaining 5.5 billion won will be used to repay asset-backed loan (ABL) bonds and the 11th round of private placement bonds.

Fashion Group Hyungji, the largest shareholder, currently holds a 14.06% stake in Hyungji Elite (5,396,215 shares). In this capital increase, it plans to subscribe for about half of its allocated shares (3,258,762 shares). In monetary terms, this amounts to approximately 1.5 billion won, or about 7% of the total funds to be raised. In addition, it has not yet been decided whether major affiliated shareholders, Hyungji I&C and Hyungji Global, will participate.

If the capital increase proceeds as planned, the combined stake of the largest shareholder and related parties is expected to fall from 28.03% to 20.18%. Specifically, Fashion Group Hyungji's stake will decrease from 14.06% to 11.44%, Hyungji I&C from 6.95% to 4.35%, and Hyungji Global from 6.20% to 3.88%.

With the additional shares issued through this capital increase accounting for 59.91% of total shares, dilution of share value after the capital increase appears inevitable.