Third-Party Allocation Capital Increase (5)
I got a call from Kim Sung-gwon.
Looks like things are moving in a way that doesn’t feel normal. It seems Hanjeong Mulsan has been in contact with the Korea Development Bank.
After hearing what I’d told him, he threw every connection he had into the search and kept close watch on the movements of the Korea Development Bank and Daejun Construction. If you already know where to look, getting information isn’t all that difficult.
“So it’s playing out exactly as expected.”
They were probably already behind the scenes, hammering out the size of the capital increase and the terms of the deal. And then, just before the shareholder meeting, they’d make the announcement.
That way, they could push through the third-party allocation capital increase while ignoring public opposition.
To stop that, I had to strike first.
I explained my plan.
“The Wall Street Times will break the story first. News Trigger will pick it up and run it again.”
So you’re going to pressure the Korea Development Bank through the media.
“Yes. Once the Daejun Construction acquisition issue becomes official, Hwaan Construction will step forward as a takeover candidate at that point.”
If another acquisition candidate appeared, and they ignored it anyway and went through with a merger with Hanjeong Mulsan, that would amount to admitting the government was stepping in to protect the founding family’s control.
And if that happened, the bribery allegations surrounding the shell foundation would flare back up all over again.
Kim Sung-gwon sounded impressed.
It’s a relief we joined forces with Continue Capital. If we hadn’t, we’d have just sat there and taken it on the chin like fools.
“I’ll take your thanks after the shareholder meeting is over.”
WST had already become wildly famous after its coverage of the Thomas Motors fiasco and Rolf Buchi’s fraud. So when that same outlet reported on a Korean chaebol control battle, American media immediately latched onto it.
The following headlines were carried over to Korea by News Trigger.
Breaking: Suspicion of Government Intervention in the Control Dispute Through the Korea Development Bank
Rights Offering Used to Secure Korea Development Bank’s Stake — If True, an International Dispute
The Korea Development Bank Joins the Line of Chaebol Favoritism After the National Pension Service
If True, Korea’s Financial Credibility Could Suffer
Foreign Investment Firms Demand a Statement from the Korea Development Bank
Once the article went out, Hanjeong Mulsan’s stock fell by nearly 10 percent.
The internet communities and stock boards exploded.
Most people thought it was nonsense, and the pro-government media quickly started publishing rebuttals as well.
The Korea Development Bank Intervention Claim Is Groundless Fabrication
Who Spread the Rumor, and for What Purpose?
Some Shareholders File a Stock Manipulation Complaint Against Kim Sung-gwon
Kim Sung-gwon stepped forward and pressed the Korea Development Bank to state its position.
“There are rumors that the Korea Development Bank will intervene in the Hanjeong Group control dispute. To clear up any misunderstanding, we ask both the Korea Development Bank and Hanjeong Mulsan to make their positions public directly.”
In a situation where rumors were already flying and the stock price was swinging wildly, they couldn’t just keep silent forever.
Eventually, Korea Development Bank President Park Won-sang stated its position.
“The Korea Development Bank has been pushing to sell its Daejun Construction stake for quite some time, and it is true that Hanjeong Mulsan is the leading candidate.”
The reporter asked, “Then are you proceeding through a capital increase, as the initial reports said?”
“The acquisition method is still under discussion.”
“There is precedent saying that a third-party allocation capital increase during a control dispute is illegal. Is that not the case?”
“As I’ve said, nothing has been finalized yet.”
“What do you say to criticism that this amounts to special treatment for a chaebol group?”
“I won’t take any further questions.”
Once the acquisition was made official, the pro-government media that had been attacking the three-way alliance as purveyors of fake news instantly changed their tune.
Hanjeong Mulsan to Take Daejun Construction into Its Arms?
Korea Development Bank Moves Forward with Sale Without Legal Issues
Is a Mega Domestic Construction Giant About to Be Born?
Korea Development Bank on Track to Become Hanjeong Mulsan’s Third-Largest Shareholder?
The value of the Daejun Construction stake held by the Korea Development Bank was worth about 2 trillion won.
Even if they sold it at a 20 percent discount, they would still need roughly 1.5 trillion won. Realistically, the only way to raise that kind of money was through a capital increase.
Kim Sung-gwon protested forcefully.
“A third-party allocation capital increase during a control dispute is prohibited by law! If a capital increase is absolutely unavoidable, then it has to be a general offering so that other investors can participate. If not, then at the very least the Korea Development Bank should refrain from exercising its voting rights at this shareholder meeting. KSGI will immediately file for an injunction to block the issuance of new shares.”
But the Korea Development Bank insisted there was no problem and pushed ahead.
With the share dilution from the capital increase, the merger with a distressed company, and the control-dispute issue all seemingly headed for resolution, Hanjeong Mulsan’s stock immediately hit its daily limit down.
The stock board was seething with anger.
The one doing the taking and the one being taken from never entered a fight with the same resolve.
The side doing the taking had little to lose even if it failed. After all, it had never belonged to them in the first place. But the side being robbed was different.
The pain and anger of losing 1 million won were always greater than the happiness of gaining it. That was why people reacted so fiercely when something they already owned was being taken away.
The chaebols were no different. If anything, they were worse.
At this rate, there was no guarantee of victory if things went all the way to the shareholder meeting. So Chairman Ju Min-jae chose the one method that could secure a hundred-percent win.
That method was acquiring Daejun Construction.
The plan was to bring in the Korea Development Bank through a third-party allocation capital increase and turn it into an ally.
President Oh Young-hwan heard the story and agreed immediately.
He had already taken enough benefits that it would have been awkward not to do something in return. And if he could shove off a tax-funded headache while he was at it, it was a pretty good deal.
The problem was that Daejun Construction was nothing more than a bloated distressed company.
The Korea Development Bank had already lent Daejun Construction 1.2 trillion won. If Hanjeong Mulsan acquired it, the company would have to repay that money on top of the acquisition price.
As a merger that would clearly damage the company, most shareholders voiced their opposition. Some even said it was as if they had swallowed poison just to defend control.
But...
That was a problem for later.
What mattered was protecting control, no matter how much the company lost along the way.
The irony was obvious: a manager who was supposed to serve the shareholders’ interests was instead trampling them. But it didn’t matter.
I can’t let my company be stolen by a gang of thieves.
The stock had risen on headlines, not fundamentals, and once the headlines disappeared, it would fall right back down. There was no need to even go as far as the shareholder meeting; victory was all but certain, and that made a crash far more likely.
Ju Cheol-jin thought of Han Miru and smiled.
By now, he’s probably staring at the collapsing stock price and making a miserable face.
Sure enough, once the Daejun Construction acquisition became official, Hanjeong Mulsan’s stock immediately collapsed.
The share price, which had been on pace to break 200,000 won, hit the daily lower limit two days in a row and fell to 90,000 won.
While everyone else was desperate to dump their shares, KSGI and Elliott moved in the opposite direction and kept buying more. I wanted Continue Capital to buy more too, but we didn’t have the cash.
I told Dong-ho sunbae and Kim Beom-seok the same thing.
“If you’ve got money, buy more now. Use nominee accounts so you don’t get caught.”
“Understood.”
That was one of the advantages of working in private equity.
While I was speaking with Kim Sung-gwon and Heo Min-woong about what came next, I got a call from Yoo Jae-ho.
I had been meaning to contact him first, so the timing was perfect.
So the Korea Development Bank has stepped in after all. Do you have a response ready?
“Yes.”
Not sounding particularly surprised tells me you were expecting this.
Chairman Yoo didn’t bother asking what the answer was. In any case, time would tell.
I brought up my real request casually.
“Actually, I do have a favor to ask.”
What kind of favor?
“Nothing major, but... if you know anyone who’s interested in investing, would you recommend that they buy Hanjeong Mulsan stock? If they get in now, they should be able to make at least 50 percent.”
In other words, if they had any slush money lying around, they should buy aggressively. It was dead money anyway; might as well let it grow while the opportunity was there.
That’s not a difficult request. Surely you aren’t saying this is the favor?
Of course, the real favor was something else.
“If possible, please tell them to entrust the voting rights attached to those shares to KSGI. We just need them to hold the shares until the shareholder registry is closed.”