Brand Refactoring, the largest shareholder of Dong Sung Pharm, announced on the 3rd that it is directly meeting with shareholders to secure "disapproval consent forms" ahead of the creditors’ meeting scheduled for the 18th, which will be a critical juncture in the company’s rehabilitation process.
The Brand Refactoring team stated, "As there is speculation that Taekwang Industrial and United Asset Management Company (UAMCO) will participate in the acquisition of Dong Sung Pharm and that they 'will not proceed with a capital reduction,' some shareholders are mistakenly interpreting this as 'shareholder protection.'" They added, "However, in the context of rehabilitation and M&A, the core issue of shareholder losses is not whether a capital reduction occurs, but rather how much the value of existing shares is diluted through large-scale issuance of new shares and convertible bonds (CBs). Therefore, shareholders’ judgment criteria are fundamentally distorted."
They further explained that while the phrase "no capital reduction" may superficially sound favorable to shareholders during rehabilitation, in practice, "capital increase" instead of reduction can result in even greater losses. Even if the number of shares remains the same, a massive issuance of new shares immediately dilutes both the ownership ratio and value per share for existing shareholders.
In particular, they asserted that fundraising by a company under rehabilitation is generally subject to less favorable terms than for ordinary companies, often involving low-priced new shares, potential for conversion price adjustment (refixing), and collateralized structures. In these cases, existing shareholders can experience significant value loss "even without a capital reduction."
The Brand Refactoring team added, "The 'avoiding capital reduction' logic that shareholders currently trust is only half the story." They continued, "If shareholders believe they are safe just because there is no capital reduction and delegate their voting rights, they will have no way to reverse the outcome regardless of how the future funding structure is designed."
They further argued that if the rehabilitation plan passes at the creditors’ meeting, subsequent processes such as capital increases and CB issuance will likely be implemented wholesale under the justification of being 'procedurally legal,' and the entire burden will fall on the shareholders.
Brand Refactoring also expressed concern that some stakeholders are trying to secure voting rights by constructing a simplistic narrative of "Taekwang and UAMCO acquisition equals shareholder protection" during this process.
From the shareholders’ perspective, what matters more than who the acquirer is are the following: ▲the scale and price of new share issuance, ▲the volume of CBs and their conversion terms, ▲whether the funds are for "operating capital" or "debt capital," and ▲whether pre-existing shareholder rights will be meaningfully preserved after the rehabilitation plan is implemented.
Nonetheless, in the market, the focus remains solely on "whether there will be a capital reduction," without asking these structural questions, leading to critical misjudgments by shareholders.
Brand Refactoring emphasized, "Shareholders should not easily delegate their voting rights for any reason," and added, "What is needed now is not someone’s 'good words,' but a structure with clearly stated numbers and conditions." They further stated, "Submitting a proxy is not just a simple document-it could be an act of giving up shareholders’ own right to survival. At the creditors’ meeting on the 18th, the key issue is not just 'for or against,' but that shareholders exercise their voting rights directly with accurate information."
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