[MarketING] Warning on Rights Issues Amid Market Correction

KOSPI Closes Higher After One Day, Recovers 2580 Level
Stocks with Recent Large-Scale Capital Increase Announcements Show Weak Performance

The KOSPI rebounded after a day, recovering the 2580 level. The rise was driven by purchases from foreigners and institutions. Although the index rose, stocks that recently decided on large-scale rights offerings showed sluggish stock prices. This is believed to be because the large-scale rights offerings led to a contraction in investor sentiment amid the market's adjustment.

KOSPI closes higher after a day... at 2580 level

On the 26th, the KOSPI closed at 2582.20, up 12.10 points (0.47%) from the previous day. The KOSDAQ ended the session at 879.50, up 4.66 points (0.53%). Both KOSPI and KOSDAQ started lower but successfully turned to gains, although the extent of the rise was limited.

[Image source=Yonhap News]

Foreigners and institutions led the buying that pushed the index up. On that day, foreigners net purchased 13.4 billion KRW in the KOSPI market and 105.8 billion KRW in the KOSDAQ market. They also bought 884.9 billion KRW in the futures market. Institutions purchased 230.7 billion KRW and 56.4 billion KRW in the two markets, respectively. On the other hand, individuals net sold 223.6 billion KRW and 148.5 billion KRW.

Seokhwan Kim, a researcher at Mirae Asset Securities, analyzed, "The domestic stock market started lower due to weak U.S. economic indicators but rose as foreign futures buying increased, leading large-cap stocks to strength. In the KOSPI market, the electric gas and construction sectors showed strength, while in the KOSDAQ market, semiconductor and other IT technology stocks were strong."

The construction sector showed strength, buoyed by Hyundai Engineering & Construction's record-largest order in Saudi Arabia. The construction sector rose 1.82% that day. Hyundai Engineering & Construction rose 6.25%. Researcher Kim explained, "The construction stocks strengthened as news reflected that Hyundai Engineering & Construction secured a petrochemical plant construction project worth 6.5 trillion KRW in Saudi Arabia."

On the 24th (local time), Hyundai Engineering & Construction signed a contract for the 'Amiral Petrochemical Plant Package 1 & 4' at Aramco headquarters located in Daran, Saudi Arabia. The Amiral project is a petrochemical plant construction project promoted by Aramco in the Jubail area of eastern Saudi Arabia. The project scale is 5 billion USD (approximately 6.5 trillion KRW), making it the largest project Korean companies have secured in Saudi Arabia to date.

Moonjun Jang, a researcher at KB Securities, said, "While the overall stock price weakness in the construction sector continues, the first important key to a meaningful rebound in Hyundai Engineering & Construction's stock price will be overseas orders following the Saudi Amiral project win and the possibility of exceeding the conservative annual order target. Considering that overseas orders in the first half reached about 3.4 trillion KRW and the bidding pipeline is continuously increasing, exceeding the annual target of 5.7 trillion KRW will be feasible."

Stock prices sluggish due to large-scale rights offering shock

Amid the recent market adjustment, stocks that have undertaken large-scale rights offerings are suffering from sluggish stock prices. Generally, rights offerings are viewed negatively as they dilute share value, and combined with unfavorable market conditions, investor sentiment appears to have sharply cooled.

On that day, SK Innovation closed at 171,500 KRW, down 6.08% from the previous day. It showed a sharp decline, falling to the 160,000 KRW range during the session. The news of a rights offering worth over 1 trillion KRW seems to have acted as a negative factor.

SK Innovation announced after market close on the 23rd that it had decided on a shareholder allocation rights offering worth 1.18 trillion KRW. The newly issued shares amount to 8.19 million shares, which is 8.8% of the current total shares.

As a result, SK, the largest shareholder of SK Innovation, also saw its stock price fall by 4.17%.

In the securities industry, the impact of SK Innovation's rights offering is expected to be short-term. Hyunryul Jo, a researcher at Samsung Securities, said, "Since the rights offering was unexpected by the market, investor sentiment will show weakness in the short term. However, referring to past cases of increases by refining and chemical companies, 30 trading days after the announcement, Hanwha Solutions and Lotte Chemical's stock prices rose by 10% and 5%, respectively. This was due to expectations of new business expansion following the rights offering." He added, "The increase rate in the number of shares from this offering is minor compared to Hanwha Solutions (20%) and Lotte Chemical (25%), so the investor sentiment weakness is unlikely to be prolonged or have a large ripple effect."

Previously, CJ CGV, which had seen its stock price plunge continuously following news of a fund-raising worth over 1 trillion KRW, continued to show weakness that day. CJ CGV closed down 1.61% at 9,790 KRW. During the session, it fell to 9,340 KRW, setting a new 52-week low again that day.

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