Dongkuk Industries Stock Plunges on Insider Trading Allegations
By Park Hyong-ki
Staff Reporter
Shares of Dongkuk Industries have suffered days of free falls, hit by allegations that its major shareholders used insider information to sell their holdings before issuing new shares.
Last Tuesday, the company filed a public notice, announcing that it will issue 15.5 million new shares worth about 77.6 billion won to existing shareholders.
But a month before the announcement, its major shareholders, including company president Chang Se-hee, started selling off their shares when the stock price reached a record high. They unloaded about 6 percent of their shares. Since then, the company's shares have started to fall, hurting other investors. Under the rights issue plan, the major shareholders are entitled to buy new shares at 5,010 won each unit, about 30 percent off its share price.
Analysts are criticizing the sale of shares ahead of a rights issue, which undermined investor confidence in its management. They say its share price is going to take a further beating going forward.
Due to the major shareholders' illicit practices, analysts are downgrading the stock's rating, cutting their target prices and including it on their sell-lists.
``This is a clear act of insider trading,'' said Lee Sang-hun, an analyst of CJ Investment & Securities.
He said managers unfairly took advantage of the rights issue, and sought to buyback new shares at a lower price with hopes that the shares would eventually climb on sound fundamentals.
When a company issues new shares to its shareholders, the value of its shares fall, and those new shares are normally sold to shareholders at a discounted price.
Analysts had been rosy about the shares of Dongkuk Industries, a producer of steel strips, driven by global steel growth. Foremost, they were mostly optimistic about Dongkuk S&C's growing business in alternative energy such as wind power. Dongkuk S&C is wholly owned by Dongkuk Industries.
On the back of this, Dongkuk Industries shares gained momentum, reaching 14,400 won at the end of October from a mere 1,500 won in December 2006.
Analysts say the shareholders' illegal insider trading has increased nothing but uncertainty and risks concerning its business transparency.
``The unfair practices have left a serious slur on the company,'' said Lee Eun-young, an analyst of Mirae Asset Securities.
Lee cut her target price to 7,000 won from 17,000 won.