"More than 55% of Listed Companies Fail to Advance New Secondary Battery and AI Businesses"

Analysis of Semiannual Reports of 233 Listed Companies with 'New Business Additions' in 7 Themed Industries
FSS: "Possibility of Unfair Trade Links... Will Strictly Respond with Focused Inspections"

#Company A promoted a specific business through the media after a change in the largest shareholder and added the business purpose to its articles of incorporation. The stock price rose sharply in a short period after acquiring shares of Company B related to the business. Meanwhile, the largest shareholder and related investors converted convertible bonds (CB) into stocks and sold them to realize large profits. They also sold all shares of Company B within a few months and disclosed in the semi-annual report that they were not engaged in the business.

On the 19th, the Financial Supervisory Service (FSS) announced that as a result of an analysis of the status of new business promotion based on the 2023 semi-annual reports, among 233 listed companies that added seven major thematic industries including secondary batteries as new business purposes, more than half (55%), or 129 companies, showed no progress in related business activities to date. Earlier, the FSS announced in April measures to strengthen investigations into disclosures of new business progress and false new business promotions, as cases of adding thematic industries such as secondary batteries and artificial intelligence as business purposes frequently occurred, mainly among listed companies. Subsequently, as a follow-up to disclosures, the corporate disclosure format was revised in June to mandate the description of new business progress in regular reports. This analysis was conducted on the semi-annual reports for this year, the first to apply the revised disclosure format. The seven thematic industries are metaverse, cryptocurrency·NFT, secondary batteries, artificial intelligence, robotics, renewable energy, and COVID-19.

The FSS stated, "Following additional reviews by the FSS departments related to accounting, investigation, and disclosure for the 129 companies with no business progress, it was judged that prompt follow-up actions and continuous management and supervision are necessary to protect investors for these listed companies and similar future cases."

Companies that did not pursue the newly added business purposes showed low management stability due to years of operating losses, capital erosion, and changes in the largest shareholder. A significant number of companies were designated as management targets or faced delisting due to reasons such as embezzlement and audit opinion refusals. The FSS noted that these companies might be tempted to engage in inappropriate accounting practices to avoid management target designation cancellation or delisting.

Companies suspected of unfair trading, such as converting convertible bonds (CB) and selling stocks by major shareholders or related parties after announcing new business promotion, were also found. In fact, Company A’s stock price rose sharply in a short period after the change in the largest shareholder due to media promotion of the thematic business, during which the largest shareholder and related investors realized large profits through CB conversion and sales.

Among the companies that did not pursue the business, 31 companies (25%) violated disclosure regulations by failing to submit regular reports and major event reports. Eighty-four companies (65%) inadequately described the progress of new business in their semi-annual reports.

Ninety-five companies (74%) raised external funds through paid-in capital increases and CB issuance before and after announcing new business promotion. The average amount of funds raised by these companies was 49.6 billion KRW, significantly exceeding the average for all listed companies (25.4 billion KRW, 0.9 times). Accordingly, the FSS pointed out concerns that funds might be used for other purposes or misappropriated despite no actual business being pursued.

The FSS plans to strictly respond to acts of deceiving investors and obtaining unjust profits by entering new businesses without the intention or capability to pursue them, considering such acts as serious violations. Among the non-pursuing companies, 14 already selected for examination will be actively reviewed and considered for audit conversion, and four additional companies were selected for examination considering accounting analysis risk factors. Companies with poor business progress after announcing new business promotion will be checked for unfair trading suspicions, and thorough planned investigations will be conducted if necessary. When companies that have not pursued the business submit securities registration statements to raise funds, they will be required to accurately describe past new business performance and future plans, and prompt follow-up actions will be taken if violations such as unfair trading, false accounting, embezzlement, or breach of trust are found.

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