[Corporate Financing] Sampyo Industry Issues 75 Billion Won Redeemable Preferred Shares

4.5% Dividend... Dividend Rate Jumps to 9.5% if Timely Repayment Fails
Within 3 Years, a Third Party Designated by Sampyo Must Take Over
IB Industry Interprets as "Preparation for 3rd Generation Succession Fund"

[Asia Economy Reporter Lim Jeong-su] Sampyo Group's main affiliate, Sampyo Industrial, has issued 75 billion KRW worth of redeemable preferred shares. This is interpreted as a strategic move to secure succession funds for the third generation, specifically for Jeong Dae-hyun, president of Sampyo Cement.

According to the investment banking (IB) industry on the 24th, Sampyo Industrial issued 500,000 redeemable preferred shares underwritten by Shinhan Investment Corp. The issue price per share was 150,000 KRW, totaling 75 billion KRW. Shinhan Investment acquired the Sampyo Industrial redeemable preferred shares through a special purpose company (SPC).

The dividend rate on the redeemable preferred shares paid annually by Sampyo Industrial to investors is known to be 4.5%. In terms of amount, this is approximately 3.4 billion KRW per year. However, Sampyo Industrial can require investors to sell the redeemable preferred shares to a third party of its choosing. This functions as a kind of early redemption right (call option).

Sampyo Industrial can exercise the call option every year for 10 years starting one year after issuing the redeemable preferred shares. If Sampyo Industrial does not designate another investor to acquire the redeemable preferred shares within three years, the preferred dividend rate increases to 9.5%. This means a substantial penalty interest (dividend) of 500 basis points (5 percentage points) is added in case of delayed redemption.

Additionally, if any of the following occur?△ Sampyo Industrial’s debt ratio exceeds the agreed level, △ changes in corporate governance, or △ the audit opinion is not 'unqualified'?and Sampyo Industrial does not exercise the call option, the dividend rate will sharply increase by the same margin.

An IB industry insider evaluated, "Because the dividend rate rises significantly if Sampyo does not redeem the preferred shares on time, the redemption obligation is quite strong." The insider explained, "Redeemable preferred shares usually have no maturity, but in this case, if dividends are not paid, they accumulate, making redemption within three years highly likely. This is quite similar to perpetual bonds (hybrid capital securities) where redemption is common."

Regarding the background of issuing the redeemable preferred shares, some speculate it is a preparatory step to secure succession funds for the third generation.

Sampyo Industrial is 98.25% owned by Sampyo, the holding company. SP Nature holds 1.74%, and Jeong Dae-hyun, eldest son of Jeong Do-won, chairman of Sampyo Group, holds 0.01%. SP Nature is a company wholly owned by the third generation, including President Jeong (71.95%).

An industry insider said, "If Sampyo Industrial designates SP Nature or the third generation as the third party to acquire the redeemable preferred shares held by investors in the future, they can secure succession funds by utilizing high-dividend preferred shares. However, since no third party has been designated yet, it is difficult to make a definitive judgment."

A Sampyo representative stated, "The issuance of redeemable preferred shares is unrelated to succession and is intended to raise operating funds for the business."

This content was produced with the assistance of AI translation services.