🚨 New Stock Issuance: Key Mechanism for Corporate Funding and Share Changes

Today Korean Social News | 2025.06.21

📌 YTN New Stock Issuance Controversy…Employee Union's Court Request Rejected

💬 YTN's employee shareholders' union asked the court to stop a new stock issuance that would increase Yujin Group's ownership, but the court rejected their request. YTN decided to issue new stocks to third parties to improve its financial structure and invest in content. Through this process, Yujin Group's ownership increased to 39.2%, which is the maximum limit for major shareholders.

The employee union claimed this new stock issuance was designed to favor specific shareholders unfairly, but the court recognized the company's need to raise funds. This case shows how new stock issuance affects not just fundraising but also corporate control structure.

Summary

• New stock issuance is a way for companies to raise money by creating and selling new shares.
• It's used for various purposes like improving finances, business expansion, and investments.
• It can reduce existing shareholders' ownership percentage and change corporate control, so careful review is needed.

1️⃣ Definition

New stock issuance means companies create and sell additional new shares beyond their existing shares to raise money. Simply put, when a company needs money, it creates new shares and sells them to investors.

This is an important way for companies to get funding for business operations and expansion without bank loans, and it gives investors a chance to participate in the company.

💡 Why is it important?

• It's a key way for companies to get money for growth and investment.
• Companies can improve their financial structure by increasing equity without increasing debt.
• It affects existing shareholders' ownership percentage and corporate control.
• It directly impacts stock prices and trading volume in the stock market.

2️⃣ Main Methods and Procedures of New Stock Issuance

📕 Main Methods of New Stock Issuance

• New stock issuance happens in several different ways. The main methods are:

  • Rights offering: New shares are given to existing shareholders based on their current ownership percentage. This is considered the fairest method and minimizes dilution of existing shareholders' ownership.
  • Third-party allocation: New shares are given to specific investors (individuals, institutions, foreigners, etc.). This is often used to attract strategic investment or change management.
  • Public offering: New shares are sold openly to many unspecified investors. This can raise large amounts of money but has complex procedures.
  • Employee stock ownership plan allocation: New shares are given to employee stock ownership groups made up of company employees. This increases employee participation in the company.

• New stock issuance serves various purposes. The main purposes are:

  • Business expansion funding: Raises money needed for entering new businesses, facility investment, research and development, etc.
  • Financial structure improvement: Improves financial stability by paying off debt or increasing equity capital.
  • Merger and acquisition (M&A) funding: Raises money needed to acquire or merge with other companies.
  • Operating fund securing: Improves cash flow needed for daily business operations.
  • Strategic investment attraction: Attracts specific investors to gain technology, networks, management know-how, etc.

📕 New Stock Issuance Procedures and Regulations

• New stock issuance must follow legal procedures. The main procedures are:

  • Board of directors resolution: The board decides on the new stock issuance plan, issue price, and issuance method.
  • Shareholder meeting approval: Gets final approval for new stock issuance from shareholders (sometimes possible through board authority).
  • Issue price determination: Sets the stock price reasonably considering market price or book value.
  • Share subscription: Allocated investors buy the new shares and pay the money.
  • Registration change: Registers the increased capital and number of issued shares with the court.

• Various regulations apply to new stock issuance. The main regulations are:

  • Commercial law regulations: Rules about shareholder priority rights, fairness of issue price, director responsibilities, etc.
  • Capital markets law regulations: Listed companies must meet disclosure requirements, Korea Exchange approval, etc.
  • Fair trade law regulations: Large business groups face restrictions on transactions between affiliates.
  • Foreign investment regulations: Industries related to national security may have restrictions on foreign investment.
  • Broadcasting law regulations: Broadcasting companies face special regulations like foreign ownership limits and ownership caps.

Main Issues and Risks of New Stock Issuance

1. Share dilution: Existing shareholders' ownership percentage decreases, reducing voting rights and dividend rights.
2. Stock price decline pressure: Stock prices may fall due to increased stock supply.
3. Unfair issuance: Conflicts may arise from new stock issuance designed to favor specific shareholders.
4. Corporate control changes: Major shareholder changes or management changes may occur.
5. Minority shareholder rights violation: Minority shareholders' interests may not be properly protected.

3️⃣ New Stock Issuance Cases and Market Impact

✅ YTN New Stock Issuance Case Analysis

• The YTN case shows the complexity of new stock issuance. The main developments were:

  • YTN decided on third-party allocation new stock issuance for financial structure improvement and content investment.
  • Yujin Group participated as the main buyer and expanded its ownership.
  • The employee union took legal action, claiming this was "unfair issuance" favoring specific shareholders.
  • The court rejected the employee union's request to stop the new stock issuance, recognizing the company's need to raise funds.
  • As a result, Yujin Group's ownership increased to 39.2%, the maximum limit under broadcasting law.

• Several key issues emerged from this case. The core issues were:

  • There was controversy about whether the real purpose of new stock issuance was fundraising or changing corporate control.
  • Questions were raised about whether existing shareholders' interests, especially small shareholders and employees, were properly considered.
  • There were concerns about the impact on public interest of new stock issuance in a broadcasting company with public characteristics.
  • Verification was needed for the appropriateness of the issue price and transparency of procedures.

✅ Impact of New Stock Issuance on the Market

• New stock issuance has various effects on the stock market. The main impacts are:

  • Stock price changes: Generally, stock prices tend to fall when new stock issuance is announced. This is due to increased stock supply and concerns about dilution of existing shareholders' ownership.
  • Increased trading volume: Trading volume often surges as investors focus on news of new stock issuance.
  • Investment sentiment changes: Positive or negative investment sentiment forms depending on the purpose and conditions of new stock issuance.
  • Long-term corporate value: If raised funds are used effectively, they can contribute to long-term corporate value and stock price increases.

• New stock issuance characteristics differ by industry. Industry-specific features are:

  • IT·Biotech companies: Frequent new stock issuance for R&D funding or new business investment.
  • Construction·Real estate: Many new stock issuances for project financing or debt repayment.
  • Manufacturing: Large-scale new stock issuance for facility investment or overseas expansion.
  • Broadcasting·Media: Increasing new stock issuance for content investment or digital transformation.
  • Financial industry: New stock issuance needed for capital ratio improvement or regulatory compliance.

4️⃣ Related Terms Explanation

🔎 Share Dilution

• Share dilution is when existing shareholders' ownership percentage decreases due to new stock issuance.
• Share dilution means the phenomenon where existing shareholders' relative ownership percentage decreases when companies issue new shares. For example, if a shareholder owns 10 shares out of 100 total shares (10% ownership), but the company issues 100 additional shares for a total of 200 shares, that shareholder's ownership becomes 5%.
• The main effects of share dilution include: first, reduced voting rights decrease shareholders' participation in management. Second, decreased earnings per share (EPS) means less profit distributed per share even with the same net income. Third, changes in book value per share (BPS) affect the stock's intrinsic value.
• Ways to prevent or reduce share dilution include rights offerings that give existing shareholders priority in buying new shares, or using stock options or convertible bonds. Investors should consider dilution effects when making investment decisions during new stock issuance.

🔎 Third-Party Allocation

• Third-party allocation is a method of allocating new shares to specific investors.
• Third-party allocation means raising funds by allocating new shares to specific third parties (individuals, institutional investors, foreign investors, etc.) who are not existing shareholders. This is characterized by choosing specific targets to issue new shares to, unlike rights offerings or public offerings.
• Advantages of third-party allocation include: first, quick fundraising is possible. Second, companies can gain technology, networks, management know-how, etc., through strategic investors. Third, issuance conditions can be designed flexibly. Fourth, reliable fundraising is possible regardless of market conditions.
• However, there are also disadvantages. Existing shareholders' ownership can be greatly diluted, and if issued under conditions favorable to specific investors, existing shareholders' interests may be harmed. Also, management changes or corporate control changes may occur, requiring careful review.

🔎 Preemptive Rights

• Preemptive rights are existing shareholders' rights to buy new shares first.
• Preemptive rights mean existing shareholders' right to buy new shares first in proportion to their existing ownership percentage when companies issue new shares. This is an important right recognized by commercial law to prevent dilution of existing shareholders' ownership and protect investors.
• Main characteristics of preemptive rights include: first, maintaining existing ownership percentage is possible. If shareholders buy new shares equal to their ownership percentage, they can maintain their existing ownership ratio. Second, it's a transferable right - preemptive rights can be sold to other people. Third, the exercise period is limited - rights must be exercised within a set time period.
• There are cases where preemptive rights are excluded. When there are special provisions in company articles, when shareholder meetings decide to exclude them through special resolution, or in cases of third-party allocation, preemptive rights may be restricted. Investors should know and use these rights well to protect their investments.

5️⃣ Frequently Asked Questions (FAQ)

Q: Do stock prices always fall when new stock issuance is announced?

A: Stock prices often fall when new stock issuance is announced, but this doesn't always happen. Stock price reactions depend on the purpose of new stock issuance, issuance conditions, market conditions, etc. Generally, stock prices fall due to dilution effects from increased stock supply and decreased existing shareholders' ownership percentage. However, if funds raised through new stock issuance are expected to be invested in high-growth businesses or contribute significantly to financial structure improvement, stock prices may actually rise. Especially in growth industries like biotech and IT, new stock issuance for R&D or new business investment is often evaluated positively. Also, for quality companies or undervalued companies, stock prices may show steady trends despite new stock issuance. It's important for investors to make investment decisions by comprehensively analyzing the background, purpose, and issuance conditions of new stock issuance.

Q: Can individual investors participate in third-party allocation?

A: Since third-party allocation is a method where companies choose specific investors to allocate new shares to, it's difficult for general individual investors to participate freely. Companies usually conduct third-party allocation targeting institutional investors, strategic investors, major shareholders, etc. However, individual investors can participate in the following cases: first, when companies conduct third-party allocation targeting individual investors. Second, when individual investors' investment scale or purpose meets the company's criteria. Third, when participating indirectly through employee stock ownership plans. If individual investors are interested in third-party allocation, they can check participation conditions and methods through company disclosure materials or inquire about related information through securities companies. However, since third-party allocation has limited participation unlike public offerings, it may be more realistic for individual investors to consider other investment opportunities.