Controversy arises as Taekwang Industrial announces that it is considering participating in Heungkuk Life Insurance’s paid-up capital increase. It means that Taekwang Industry, the holding company of Taekwang Group, will be used to support the group owner’s private company. Currently, Truston Asset Management, which owns a 5.8% stake in Taekwang Industrial, opposes the move, calling it “an act of forcing minority shareholders to sacrifice for the sake of major shareholders.”
Heungkuk Life Insurance urgently needs capital expansion. In June, the solvency margin ratio (RBC) was 157.8%, but is known to have dropped below 150% due to the recent US interest rate hike. The financial authorities recommend maintaining this ratio at 150% or higher, and if it falls below 100%, corrective action will be taken. Heungkuk Life Insurance’s decision on the 1st of last month to postpone the exercise of call options on hybrid capital securities worth $500 million (about 560 billion won) issued in 2017 was also based on this background. This decision was, in effect, interpreted as a declaration of default (debt default), leading to oil spilling onto the financial market, which was in disarray due to the ‘Legoland incident’ at the time, and eventually turned to re- usual payment within a week. This paid-in capital increase is a desperate measure to repay borrowed money and increase capital to put out the emergency fire at the time.
Heungkuk Life Insurance, an unlisted company, is a company in which Lee Ho-jin, former chairman of the Taekwang Group, holds a 56.3% stake. The remainder is owned by related companies and special related parties. Taekwang Industrial does not own shares in Heungkuk Life Insurance. In order to increase capital in this structure, the responsible role of the main shareholder must be assumed. This is because the owner is responsible for capital expansion. If former Chairman Lee does not have much ability, he must declare his participation in the capital increase even if he borrows shares held by related companies such as Heungkuk Life Insurance and Taekwang Industrial as collateral. At the same time, under the responsibility of the main shareholder, it is necessary to gain investor trust by introducing plans for restructuring and normalizing the management of Heungkuk Life Insurance. Without this premise, opposition will inevitably spread, saying, “If the Taekwang Industrial Board of Directors approves participation in a capital increase, we will exercise our rights as a shareholder by devising all means, including legal procedures.”
