Will A Saudi Arabian Investment Company Save Kum Yang From Delisting?

• In this insight, we discuss whether a Saudi Arabian investment company (SKAEEB) could save Kum Yang (001570 KS) from delisting.

• There are several aspects of this deal with SKAEEB that are a bit fishy.

• 1) A 50% Market Premium is Not Justified; 2) Does SKAEEB have enough money? 3) Control does not change

Back in August 2023, Kum Yang's market cap was nearly 10 trillion won and it was among the top 50 stocks in Korea by market cap. Its share price has collapsed since then and its market cap has cratered to only 633 billion won and it is on the verge of getting delisted which could erase all value for its equity holders.

Given this impending danger, the company plans to hold an EGM on the 17 July. Some of the minority shareholders of the company have consolidated their ownership of Kum Yang to 3.1% (2 million shares). Under the Commercial Act, if you secure a 3% stake, you can request the company to convene an extraordinary general meeting of shareholders, make shareholder proposals, and request the dismissal of directors and auditors.

In order to pass a special resolution, such as an amendment to the Articles of Incorporation, a majority of more than one-third of shares is needed, as Chairman Ryu Gwang-ji of Kumyang and special associates own 26.5% of the shares.

The main purpose of the EGM is to help pass the agenda for the appointment of new directors so that Saudi Arabian company's 405 billion won investment in Kum Yang could be made quickly. The two new directors candidates proposed include Al Shehri Ali Faiz (CEO of SKAEEB Trading & Contracting Co - Saudi Arabia) and Lee Tae-Shik (SKAEEB Trading & Investment Co Business Development Director and Branch Manager, Korea Shipbuilding & Marine Equipment Industry Cooperative, Saudi Arabia Branch).

The appointment of these two new directors is a prerequisite for the completion of the third party allocation of paid-in capital increase worth approximately 405 billion won. If this deal is successfully completed, SKAEEB would become the largest, controlling shareholder of Kum Yang.