Capital increases are a common method for companies to raise funds, typically for new business investments, facility financing, or improving financial structures. However, there has been a recent trend of capital increases with unclear uses of funds. Instances of failing to clearly specify the intended use of funds raised through capital increases have become more frequent. This has led to a significant rise in correction requests from the Financial Supervisory Service (FSS) this year. Analysts in the securities industry are calling for increased scrutiny to ensure that funds raised through capital increases are used for genuine financial improvements, as unclear purposes could lead to embezzlement or breach of trust.
According to the FSS, companies such as Hanul Semiconductor, Sangji Construction, and Agent AI have recently received correction requests regarding their securities registration statements related to capital increases. Hanul Semiconductor and Sangji Construction each received four correction requests, while Agent AI received three. All these companies repeatedly supplemented information regarding the use of funds, transactions with affiliates, and financial conditions during the capital increase process, indicating a lack of clarity about the intended use of the funds.
Hanul Semiconductor initiated a capital increase on April 15 by issuing 4.7 million common shares, raising 22.8655 billion won through a rights offering followed by a public offering of unallocated shares. After several corrections, the company submitted its fourth amended registration statement on July 16, reducing the number of shares to be issued to 3.8 million and the total amount to 19.076 billion won. However, it decreased the operating funds while maintaining 8 billion won for debt repayment.
Hanul Semiconductor plans to use the funds from the capital increase to repay loans borrowed from its subsidiary, Hanul Vision. Hanul Vision is a special purpose company (SPC) wholly owned by Hanul Semiconductor, with assets of 8.041 billion won, liabilities of 8.02 billion won, and equity of only 21 million won as of the end of 2025. It has not generated any revenue and recorded a net loss of 2 million won. Essentially, it has been acting as a financial conduit supplying funds to Hanul Semiconductor while holding significant debt.
Sangji Construction has also faced scrutiny over the unclear use of its capital increase funds. The company issued 2.2 million common shares to raise 18.744 billion won through a preferential public offering. It plans to use the entire amount for operating funds and to lend to its subsidiary, Kyleroom Dosan, which is the developer of the 'Sangji Kyleroom Escala' project in the Nonhyeon-dong area of Gangnam, Seoul.
The issue lies in the financial condition of Kyleroom Dosan. As of the end of the first quarter of 2026, Kyleroom Dosan's equity was reported to be in the negative. Recent disclosures by Sangji Construction regarding its real estate development projects indicate that Kyleroom Dosan is in a state of capital erosion and is a project implementation company that has not generated any revenue. Consequently, the capital raised by Sangji Construction will be funneled into a real estate development project of a subsidiary that is already in a capital erosion state. This means that participants in the capital increase will bear the financial risks of both Sangji Construction's financial condition and the performance and project financing risks of Kyleroom Dosan.
Agent AI has undergone a series of capital reductions and increases. The company decided to consolidate 20 common shares with a par value of 500 won into one share, resulting in a 95% capital reduction, followed by a capital increase of 18.7359 billion won. It plans to issue 3,990,609 new shares, with 15.9129 billion won allocated for operating funds and 2.823 billion won for debt repayment. The amount the company aims to raise exceeds its annual revenue. Therefore, it is essential to assess whether the new funds will merely cover existing business losses or lead to new growth opportunities, such as expanding into renewable energy generation.
There are also cases where capital increases have been misused to create the appearance of stock manipulation or fraudulent transactions. RF Semi is a notable example. In 2023, RF Semi pursued a 20 billion won third-party allocation capital increase, with CEO Ban Jae-yong's company, Hanwha Jinpyeong Electronics (now RF Industry), acquiring the new shares, resulting in a change of management control. Hanwha Jinpyeong Electronics became the largest shareholder after investing 20 billion won on June 1 of the same year. However, the former and current executives of this company have been arrested and indicted for violating capital market laws through false disclosures and promotions related to entering the secondary battery business.
A financial investment industry official stated, “For capital increases that receive repeated correction requests, it is crucial not only to consider the scale of the increase or the discount rate but also to comprehensively verify the intended use of funds, financial risks, and transactions with major shareholders and affiliates. Especially when funds are transferred to affiliates, it is necessary to check the financial condition of the respective company and the likelihood of fund recovery.”
* This article has been translated by AI.
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