SK D&D Rights Offering Controversy... Hahn & Company’s Bold Move: "No Delisting Plans"

Stake Remains at 79% Even After Two Public Tender Offers
"Voluntarily Narrowed Its Own Options to Proactively Block Controversy"

As SK D&D moves forward with a rights offering worth 136.7 billion won, attention is focused on the fact that its largest shareholder, private equity fund (PEF) manager Hahn & Company, clearly stated in the securities registration statement that it "has no intention of pursuing delisting."

Typically, PEFs prefer to keep all options open regarding investment exits. If they unequivocally commit to a certain plan in a disclosure, they risk tying their own hands if market conditions later turn favorable. This has led to interpretations that the urgency for this rights offering to succeed is extremely high.

Hahn & Company’s Stake Remains at 79% Even After Two Public Tender Offers

According to investment banking (IB) industry sources on July 31, Hahn & Company signed a share purchase agreement last year to acquire the entire stake (31.27%) held by SK Discovery, the then-largest shareholder of SK D&D, at 12,750 won per share. Simultaneously, it carried out a public tender offer for minority shareholders at the same price. The intent was to share the control premium, usually granted only to majority stakeholders, with general shareholders as well.

At that time, Hahn & Company did not completely rule out the possibility of a voluntary delisting. Real estate development is a sector where, if projects do not go as originally planned, it can result in massive losses and require additional capital injections. Since such burdens could directly lead to losses for ordinary investors, the company considered that converting to an unlisted company and focusing on long-term structural improvement might better enhance corporate value.

However, even after two public tender offers, Hahn & Company was unable to meet the voluntary delisting requirement of a 95% stake. Their holding stopped at around 79%.

Ordinarily, PEFs favor reserved language in disclosures. If they state unequivocally that they "have no such plans," they restrict their own flexibility if circumstances change for the better. Nonetheless, Hahn & Company chose a definitive statement this time because it judged that the success of this rights offering is absolutely critical in resolving SK D&D’s liquidity crisis.

SK D&D Faces Severe Liquidity Crunch: "Even If All Self-help Measures Succeed, Cash Will Be Negative by End of October"

SK D&D is facing a liquidity crisis due to a combination of a stagnant knowledge industry center market and credit market tightening caused by the Jungang Group scandal. The company has implemented aggressive self-help measures, including asset securitization, stock-collateralized loans (about 189 billion won), and attempting to sell off eight assets.

The problem is that even if all these measures proceed smoothly, the company's projected cash balance at the end of October is estimated to be negative 61.2 billion won. This means that even after extracting every possible source of liquidity, the company cannot cover its maturing debt. According to SK D&D, without the rights offering, it will be difficult to avoid default risk.

In situations where swift and certain fundraising is necessary, the most common option for companies is a third-party allocation rights offering, targeting the cash-rich majority shareholder. Convincing just that shareholder sufficiently ensures that funds come in quickly and reliably.

Nevertheless, SK D&D’s board of directors ruled out this method. Given that two public tender offers have already been conducted, the board believed that opting for a third-party allocation would lead to controversy over "increasing majority shareholder control under the pretense of fundraising."

Of course, even the shareholder allocation method is not completely free from controversy. If existing shareholders forfeit their subscription rights and forfeited shares occur, the majority shareholder’s stake could consequently increase.

Hahn & Company’s clarification in the securities registration statement that "there are no plans for delisting" can be interpreted as an effort to preempt such misunderstandings. Furthermore, the filing includes the possibility that, if their stake increases excessively due to forfeited shares, they may sell part of their holdings to ensure sufficient circulating shares in the market.

Some have raised suspicions that SK D&D’s decision not to issue forfeited shares is aimed at increasing the majority shareholder’s stake.

However, according to the company, the actual arithmetic points in the opposite direction. If forfeited shares are allocated through a general public offering, the total number of issued shares increases, and those shares go to new shareholders rather than existing ones, leading to even more dilution for current shareholders. Thus, the decision not to issue forfeited shares is seen as a means to protect the interests of existing shareholders.

An investment banking (IB) industry official commented, "Hahn & Company tried to minimize unnecessary controversy over the rights offering to resolve SK D&D’s severe liquidity risk," and added, "In doing so, the firm made a bold move by voluntarily limiting its own future investment options."

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