[Post-IPO] SNK Focused on Capital Outflow After Listing②

[Asia Economy Reporter Jang Hyowon] It has been confirmed that SNK has mostly drained the 170 billion KRW raised during its IPO. Meanwhile, the company's performance has halved and its stock price has plummeted. As a result, individual investors who believed in SNK's rosy prospects and participated in the public offering subscription or invested are the ones suffering losses.

◆ 80 Billion KRW Paid Out Through Stock Options and Dividends

According to the Financial Supervisory Service's electronic disclosure on the 4th, SNK raised 169.7 billion KRW when it was listed on the KOSDAQ market in May last year. The first use of the raised funds was for repurchasing treasury shares. From August to November last year, SNK spent 10 billion KRW to buy 528,203 shares (KDR). The stated purpose was to enhance shareholder value.

However, these shares were transferred at a low price as stock options to executives and employees. On August 4th, SNK granted all 528,200 treasury shares previously acquired as stock options to executives including Director Jeon Se-hwan (65,000 shares), Director Wakayama Shinichiro (65,000 shares), CEO Toyama Koichi (5,100 shares), Director Sa Poong (65,000 shares), subsidiary employee Wang Sogak (50,000 shares), and 26 other executives and employees.

The exercise price of the stock options is 1 yen per original share in Japan. Since one share equals 100 KDRs (Korean Depositary Receipts), the exercise price per KDR is 0.01 yen (approximately 0.11 KRW). All employees who received stock options exercised them the next day, and based on the closing price of 12,950 KRW that day, they gained an estimated 120,000 times in valuation gains.

In addition, SNK paid out high dividends. On September 3rd, SNK paid an interim dividend of 3,332 KRW per share (KDR), a high dividend yield of 19.8% based on market price.

The total dividend amount was 68.4 billion KRW (approximately 6 billion yen). SNK’s cumulative net profit until the end of the third quarter (April and July 2020 settlement) was 13.6 billion KRW (approximately 1.1 billion yen). The dividend paid was more than five times the earnings. This corresponds to about 64% of the company’s retained earnings of 106.8 billion KRW.

A significant portion of the dividends went to SNK’s major shareholders. As of the end of the third quarter, SNK’s largest shareholder was ZUIKAKU CO., LTD, holding 33.16% of shares. ZUIKAKU is a Hong Kong company wholly owned by SNK CEO Gal Ji-hwi. Although SNK is a company based in Japan, its owner is a Chinese-affiliated corporation.

The second and third largest shareholders before listing, Perfect World Co., Ltd. and RONSEN (H.K.) CO., LIMITED, hold 18.23% and 11.48% respectively. These companies are also special-related entities of CEO Gal Ji-hwi and other key SNK executives. Including the largest shareholder, these entities received a total of 44.1 billion KRW in dividends, about two-thirds of the total dividend payout.

◆ Most Funds Raised at IPO Drained... Performance and Stock Price Declined

SNK also purchased mobile games worth 23.4 billion KRW from special-related parties of the largest shareholder ZUIKAKU. In December last year, SNK invested 33.6 billion KRW in SNK Beijing. SNK Beijing established ‘Tianjin Seyong Culture Distribution Co., Ltd.’ and acquired all assets and operations of five mobile games using SNK IP, including ‘The King of Fighters ’97 OL’ through this company.

The transaction counterparties were ‘Redo Interactive’ and ‘Huian Deyun Network’. Both companies are special-related parties of the largest shareholder ZUIKAKU and CEO Gal Ji-hwi. The structure is such that games are developed by companies owned or managed by key SNK executives using SNK IP, and then sold back to SNK.

Furthermore, SNK decided to invest 71 billion KRW in a Chinese-affiliated fund. In September, SNK announced it would invest a total of 71 billion KRW in ‘ZP SNK TMT Fund I L.P.’ established by Zhongping Capital. By the end of September, 25 million USD (approximately 28.3 billion KRW) was paid in, and an additional 35 million USD is planned to be invested by the end of next year.

Including the fund investment, the total amount of money flowing out from SNK through stock options, business acquisition, dividends, and fund investment is 172.8 billion KRW. This exceeds the 169.7 billion KRW raised from general shareholders during the IPO last year.

While SNK has been focused on capital outflow, the company’s operating profit has halved and its stock price has crashed to about one-third of the IPO price.

An industry insider said, “There have been cases in the past where Chinese companies listed in the Korean market and then ‘ran away with the money.’ To eliminate the so-called ‘China discount’ and increase trust in Chinese companies, underwriters and exchanges should establish strict standards for listing examinations.”

An SNK representative stated, “The dividend was paid as a token of appreciation to shareholders who waited despite the stock price decline and to alleviate economic difficulties caused by COVID-19. The stock options were granted legally under Japanese law and are a common practice in Japan, unrelated to capital outflow.”

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