[Column] Are Ants Interest-Free Cash Machines?

“Shareholders are nothing more than cash machines (ATMs)...”

Following CJ, SK has also launched a series of rights offerings, prompting disgruntled voices among individual investors.

The situation began as follows. On the 20th, CJ CGV announced a rights offering plan worth 1.02 trillion won. New shares amounting to 1.5 times the current listed shares (47,728,537 shares) will be issued. CJ Group argues that this is an unavoidable measure to normalize CJ CGV, which has been struggling since COVID-19.

However, the market reaction was cold. After the announcement of the rights offering plan, CJ CGV’s stock price plummeted below 10,000 won. This is the first time in 15 years since October 2008 that CGV’s stock price has fallen below 10,000 won. Before the impact of CJ CGV subsided, SK Innovation also announced a rights offering plan?a large-scale rights offering worth 1.1777 trillion won. Following this news, SK Innovation’s stock price also dropped sharply.

A rights offering is a method for companies to directly raise funds in the stock market. The rights offering itself is not bad. If the purpose of the rights offering is investment in future value such as new businesses or acquisitions of other corporations, it can act as a positive factor for the stock price in the mid to long term. Especially if the offering is targeted at new investors or major shareholders, investors expect less negative impact from stock dilution.

The problem is that as loan interest rates rise and bond issuance becomes difficult, companies are trying to easily secure funds by targeting individual investors. CJ, the largest shareholder of CJ CGV, participates in only 60 billion won out of the 1 trillion won rights offering. SK Innovation is also pushing for a general public offering rights issue, causing backlash from small shareholders. Major shareholders only pretend to contribute funds while intending to empty the pockets of retail investors.

Moreover, the issue price during a rights offering is discounted from the current stock price, which often negatively affects the stock price. This is because a large number of new shares priced lower than the current stock price can flood the market. The willingness to proceed with a rights offering despite the stock price drop can be interpreted as a sign of financial difficulty.

The purposes of the rights offerings by the two companies are also insufficient to convince individual shareholders. SK Innovation stated that out of 1.1777 trillion won, 350 billion won will be used for debt repayment, and CJ CGV said 380 billion won out of 1.02 trillion won will be used for debt repayment. This means repaying debt with individual shareholders’ money, which is tantamount to shifting the responsibility for management failure.

If companies want to take money out of shareholders’ pockets, they must provide 'something' that is worth more in return. If companies think of shareholders merely as interest-free cash machines, who would trust and invest in the company? To turn the Korea discount into a Korea premium, companies must first change their perspective on shareholders.

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