Increasing Stock Collateral Loans Threaten Major Shareholders Control in KOSDAQ Market
In recent times, there has been a growing trend among major shareholders of KOSDAQ-listed companies to take out stock collateral loans (stock loans) to the extent that it threatens their management rights. Many of these loans are aimed at securing operational funds for parent companies or for personal use. Concerns have been raised about the potential sell-off of large volumes of shares if a forced sale (mandatory sale of collateral) occurs due to falling stock prices.
According to the Financial Supervisory Service, there have been a total of 111 disclosures regarding stock collateral contracts accompanied by a change in major shareholders this year alone. This figure has more than doubled compared to the annual total of 49 disclosures last year. On the 7th, DK Marine, the largest shareholder of M2N, a company specializing in steel drums and automotive parts, extended a loan contract worth approximately 8.6 billion won secured by shares. The major shareholders’ stock loans allow them to use their shares as collateral without selling them, which offers the advantage of securing funds without interfering with their voting rights.
VIG Partners, a domestic private equity firm and the largest shareholder of the medical device company Viol, has entrusted most of its holdings (56.71 million shares, 97.08% stake) to NH Investment & Securities and has raised 280 billion won. They even leveraged shares acquired through public buyouts aimed at delisting the company as collateral.
Individual major shareholders are also tapping into stock loans. On the 31st of last month, Kim Young-sum, the largest shareholder of AI software development company Conan Technology, disclosed that he borrowed 6.5 billion won against 5.13% of his shares. The stock price of Conan Technology had surged by 21% this year leading up to that disclosure.
Generally, when stock prices rise, shareholders can borrow more funds against the same shares as collateral. However, news that major shareholders have taken out loans against their shares serves as negative news for the respective stocks. If the stock prices decline, there is a risk of a massive forced sale of shares, which could further exacerbate the decline in stock prices.
According to the Financial Supervisory Service, there have been a total of 111 disclosures regarding stock collateral contracts accompanied by a change in major shareholders this year alone. This figure has more than doubled compared to the annual total of 49 disclosures last year. On the 7th, DK Marine, the largest shareholder of M2N, a company specializing in steel drums and automotive parts, extended a loan contract worth approximately 8.6 billion won secured by shares. The major shareholders’ stock loans allow them to use their shares as collateral without selling them, which offers the advantage of securing funds without interfering with their voting rights.
VIG Partners, a domestic private equity firm and the largest shareholder of the medical device company Viol, has entrusted most of its holdings (56.71 million shares, 97.08% stake) to NH Investment & Securities and has raised 280 billion won. They even leveraged shares acquired through public buyouts aimed at delisting the company as collateral.
Individual major shareholders are also tapping into stock loans. On the 31st of last month, Kim Young-sum, the largest shareholder of AI software development company Conan Technology, disclosed that he borrowed 6.5 billion won against 5.13% of his shares. The stock price of Conan Technology had surged by 21% this year leading up to that disclosure.
Generally, when stock prices rise, shareholders can borrow more funds against the same shares as collateral. However, news that major shareholders have taken out loans against their shares serves as negative news for the respective stocks. If the stock prices decline, there is a risk of a massive forced sale of shares, which could further exacerbate the decline in stock prices.
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