Minority shareholders of Hanyang Securities filed an injunction lawsuit on the 3rd at Seoul Southern District Court to block the company's KRW 50 billion third-party capital increase, which allocates all 2.38 million new shares to largest shareholder KCGI No. 2 Private Investment Limited Partnership. The lawsuit targets the board resolution passed on the 25th of last month, with a court hearing scheduled for the 7th and share payment deadline set for the 8th. Shareholders argue that KCGI, which previously championed shareholder rights as an activist fund, is now excluding general shareholders from preemptive rights by choosing third-party allocation over rights offering, effectively lowering KCGI's average acquisition cost from KRW 58,500 to approximately KRW 43,000 per share while raising its stake from 29.6% to 40.7%. The capital increase follows Hanyang Securities' board decision to raise funds for new business ventures including over-the-counter derivatives and to maintain net capital ratio (NCR) above regulatory thresholds. Similar governance disputes erupted at Lotte Rental and Global Tax Free when private equity acquirers attempted third-party allocations immediately after management acquisitions, drawing criticism for diluting minority stakes while securing discounted shares.
Hanyang Securities Allocates KRW 50 Billion Capital Increase to KCGI at KRW 21,000 Per Share
According to Financial Supervisory Service electronic disclosure on the 6th, Hanyang Securities announced it was sued for an injunction to prohibit new share issuance on the 3rd. The plaintiffs requested the court to completely block the issuance of 2.38 million common shares (approximately KRW 50 billion) approved by the board on the 25th of last month. The court hearing is scheduled for the 7th.
Hanyang Securities decided on the capital increase to strengthen capital for new business ventures including over-the-counter derivatives and to manage soundness indicators such as net capital ratio (NCR). The issue price was set at KRW 21,000 per share, a 12.9% premium to the reference price, with all shares allocated to largest shareholder 'KCGI No. 2 Private Investment Limited Partnership.' The share payment deadline is the 8th.
The company emphasized the 12.9% premium issuance and one-year mandatory lock-up measures, explaining the capital increase as part of responsible management to enhance shareholder value. Through this capital increase, KCGI secured approximately 10% in new shares at KRW 21,000 each, raising its total stake to 40.7% and lowering its average purchase price to approximately KRW 43,000. KCGI acquired 29.6% of existing shares at KRW 58,500 per share during last year's management acquisition.
Asset Managers Criticize KCGI for Excluding General Shareholders from Preemptive Rights
Market concerns persist despite the company's explanations. The main point of contention is that KCGI, which previously advocated for minority shareholder rights protection, used third-party allocation instead of the rights offering principle under commercial law when acquiring a company, thereby restricting general shareholders' preemptive rights.
An asset management industry official stated, "The method commonly used by existing controlling shareholders or private equity funds to increase stake and lower unit cost is being replicated by KCGI, which proclaimed activism," adding, "While packaging it as responsible management by emphasizing premium issuance, it infringes on general shareholders' preemptive rights."
An asset management company representative also expressed regret over the third-party allocation method, saying, "Unless the company's funding needs are truly urgent, it is correct to first attempt a rights offering." The representative pointed out, "Although issued at a premium, if the largest shareholder wants to expand stake to the 40% range by more than 10 percentage points, they would normally have to pay a 30-50% premium through a tender offer."
Recently in capital markets, structures that lower acquirers' average purchase prices by conducting third-party capital increases simultaneously with management acquisitions have repeatedly come under scrutiny. Lotte Rental faced strong opposition from minority shareholders and institutional investors concerned about general shareholder dilution when it attempted a large-scale third-party capital increase while selling controlling stake to private equity fund Affinity Equity Partners. Global Tax Free also invalidated its capital increase within one day after shareholder value damage controversy arose when the major shareholder tried to transfer existing shares at a high control premium while allocating new shares to the acquirer at a discounted price.
Hanyang Securities Defends Third-Party Allocation as Preemptive Capital Strengthening
Hanyang Securities drew a line against such governance concerns. The company's position is that preemptive capital strengthening of KRW 50 billion was unavoidable to maintain soundness, as the NCR currently around 630% is expected to fall to the 200% range due to increased required equity capital when obtaining over-the-counter derivatives business authorization.
Regarding criticism of excluding general shareholders, the company countered that the 20-30% discount issuance typically accompanying ordinary rights offerings could instead cause stock price declines and harm existing shareholders.
A Hanyang Securities official emphasized, "We judged that having the largest shareholder directly inject funds rather than requiring additional financial burden from shareholders is a way to enhance shareholder value," adding, "Existing share acquisition is a management transfer transaction and this capital increase is new capital inflow, so please view it as a decision for company growth, not price adjustment."
CEO Kim Byung-chul and Executive Kim Tae-yeon Purchase Hanyang Securities Stocks
Alongside the capital increase decision, company executives' purchases of treasury stocks continued. Hanyang Securities CEO Kim Byung-chul purchased 600 shares on the 30th of last month on the exchange at an average of KRW 18,229 per share. Executive Director Kim Tae-yeon also bought 976 shares at KRW 20,300 on the 19th of last month.
The result of minority shareholders' injunction application to prohibit new share issuance, triggered amid governance controversy, is expected to take shape within this week after the hearing on the 7th.
FAQ
What did Hanyang Securities minority shareholders do on the 3rd?
Minority shareholders of Hanyang Securities filed an injunction lawsuit on the 3rd at Seoul Southern District Court to block the company's KRW 50 billion third-party capital increase that allocates all 2.38 million new shares to largest shareholder KCGI No. 2 Private Investment Limited Partnership.
Why are shareholders opposing KCGI's capital increase allocation?
Shareholders argue that KCGI excluded general shareholders from preemptive rights by choosing third-party allocation over rights offering, effectively lowering KCGI's average acquisition cost from KRW 58,500 to approximately KRW 43,000 per share while raising its stake from 29.6% to 40.7%, despite KCGI previously advocating for shareholder rights protection as an activist fund.
When is the court hearing scheduled for the injunction lawsuit?
The court hearing for the injunction lawsuit is scheduled for the 7th, with the share payment deadline set for the 8th.
