S.Korean firms' rights issues swell 10-fold in June

An increasing number of South Korean companies are bumping up new share sales in search of cheaper funds.

A total of 10 companies listed on the Kospi main bourse have announced rights offerings so far this month, totaling 2.2 trillion won ($1.7 billion). That is 2.5 times more than the same period last year and 10 times higher than last month. 

South Korea’s largest oil refiner SK Innovation Co. and top multiplex cinema chain CJ CGV Co. accounted for the lion's share of the new fundraising.

CJ CGV is poised to raise 1.02 trillion won in new shares, about twice its market capitalization.

The disclosure sent its share price 33% down over the past four trading days. The cinema operator has suffered shortfalls over the past few years and is expected to extend its losses this year.

SK Innovation is seeking to sell 1.2 trillion won worth of new shares, representing an 8.9% stake in its market value.

The parent company of battery maker SK On Co. has channeled a substantial amount of its cash, or borrowings, into the majority-owned subsidiary. It had injected 2 trillion won into the loss-making unit since late last year.

Elevated interest rates and chilled investor sentiment in the debt market drove companies to flock to the stock market to raise funds at cheaper costs. Rights issues tend to be sold below market prices.

From a shareholder perspective, however, the latest fundraising plans raise eyebrows. Half of the new shares will be placed with minority shareholders, diluting their ownership.

What is worse, about half of the proceeds will be used to repay debts and as operational expenditures, rather than be put into new investments for business expansion.

CJ CGV will spend 82.5% of the proceeds from new share issues to pay back debts and as operational expenditures.

Other Kospi-listed companies that unveiled rights offering plans this month include machinery maker KC Cottrell Co.; SD Biosensor Inc.; Sambu Construction Co.; and IGIS Value Plus REIT.

Their share prices have slid in response to their rights offering disclosures.

Women’s apparel maker In The F Co. is the only company that saw its share price rise despite the rights offering news, up 21.2%. The new shares, worth 4 billion won, will be placed to third-party investors.

Stricter regulations over preferred shares, convertible into common shares, led companies to also turn to rights offerings to raise funds, market watchers said.

Applying the same rules as those for convertible bonds, the country’s top financial watchdog tightened rules over the conversion of preferred shares to common stock and required their conversion price be adjusted in tandem with their market price change. Those rules came into effect last month.

The benchmark Kospi index has advanced 15.5% this year, with the base rate up a quarter percentage point to 3.50%.

Write to Byeong-Hun Yang at hun@hankyung.com

Yeonhee Kim edited this article.