[Inside Chodong] Retail Investors Left in Tears as Trust in Listed Companies Collapses

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"I never want to look at construction stocks again."

These were the words of an acquaintance I met last weekend. He had been steadily investing in stocks but suffered heavy losses with GS Construction. He also experienced losses last year due to the decline in HDC Hyundai Development Company’s stock price. "It’s painful enough when stock prices fall for any reason, but to find out it’s because of shoddy construction is unacceptable," he said with a click of his tongue.

Recently, GS Construction’s stock price plummeted. The stock, which was close to 20,000 KRW earlier this month, sharply dropped to the 13,000 KRW range on the 7th. On the 6th alone, the stock price fell by more than 19%. The issue of poor construction quality at GS Construction led to this stock price crash.

At the end of April, an accident occurred where the underground parking lot of an apartment complex in Geomdan, Incheon, collapsed. The Ministry of Land, Infrastructure and Transport’s investigation revealed that the collapse was due to comprehensive negligence at every stage?from design to supervision and construction. Following the ministry’s announcement, GS Construction issued an apology and announced plans to reconstruct the entire apartment complex. GS Construction estimates the reconstruction cost to be approximately 550 billion KRW over about five years, from demolition to the completion of the new apartments.

Brokerage firms have reflected this in their forecasts by lowering GS Construction’s target stock price, predicting a difficult stock price trend for the time being. Uncertainty is expected to persist until the Ministry of Land, Infrastructure and Transport releases the results of its full-site investigation and the disposition results related to this accident in August. Furthermore, with collapse accidents occurring at GS Construction following last year’s HDC Hyundai Development Company incident, investment sentiment toward construction stocks as a whole is expected to weaken. Last January, the stock price of HDC Hyundai Development Company was halved compared to before the collapse accident at Gwangju Hwajeong I-Park. The damage caused by poor construction was directly passed on to shareholders.

Although market conditions have not been unfavorable this year compared to last year, retail investors continue to shed tears. They trusted their investments, only to face stock price crashes and shareholder value erosion.

Recently, large corporations such as CJ CGV and SK Innovation have raised concerns about shareholder value dilution as they raised funds on the scale of trillions of KRW. Last month, CJ CGV decided on a paid-in capital increase totaling 1.02 trillion KRW. Just before the announcement, CJ CGV’s stock price was 14,500 KRW but has since fallen below 9,000 KRW. Holding company CJ and its affiliates have also been suffering from stock price slumps, hitting 52-week lows one after another. SK Innovation’s stock price also weakened after announcing a paid-in capital increase of 1.1777 trillion KRW. The large-scale capital increase inevitably dilutes shareholder value, but what upset shareholders even more was the plan to use the raised funds to repay debt. Instead of raising funds through loans or bond issuance, which would incur interest costs, the company is essentially taking money from shareholders’ pockets to pay off debts.

Companies cannot always have only good news. Business environments can be tough, leading to poor performance or unexpected adverse events. However, shareholders should never suffer because companies fail to do what they are supposed to, such as proper construction. Also, companies must not pass losses onto shareholders for the sake of corporate profits. If the only thing shareholders receive in return for their trust and investment is shareholder value erosion, trust will inevitably collapse, and shareholders will turn their backs. This must be kept in mind.

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