[Alpha Biz= Paul Lee] GeoYoung, a pharmaceutical wholesaler, is facing controversy over a large-scale capital reduction shortly after its major shareholder, Chosun Hyeji Y, was acquired by MBK Partners. While the capital reduction is seen as a form of shareholder return, it has raised concerns about increased debt ratios and the potential deterioration of the company’s financial health.
According to the Financial Supervisory Service's electronic disclosure system on Monday, Chosun Hyeji Y conducted a paid-in capital reduction of approximately 2.746 trillion KRW last year. A paid-in capital reduction involves returning part of the capital to shareholders in cash, which decreases the company’s capital. While this is seen as a positive shareholder return measure, it increases the risk of financial instability, as the company’s debt ratio may rise due to the capital reduction.
According to Chosun Hyeji Y's corporate registration, the capital reduction took place in early July last year. This was about a month after MBK Partners became the largest shareholder by acquiring 71.6% of Chosun Hyeji Y’s shares.
When MBK took over as the largest shareholder, the board members were replaced by MBK personnel, and immediately after, a capital reduction took place, with MBK recovering about 2 trillion KRW, which is 71.6% of the total capital reduction amount. Apart from the founder and CEO, Chosun Hye, all five executive directors of Chosun Hyeji Y are now MBK executives.
The large-scale capital reduction has significantly weakened Chosun Hyeji Y’s financial structure. The debt ratio, which was 506% at the end of 2023, is projected to rise drastically to 1,600% by the end of 2024. At the same time, cash and cash equivalents have been reduced from 181.9 billion KRW to 46.1 billion KRW, a quarter of their previous value.
Last year, Chosun Hyeji Y not only saw a decrease in operating profit but also turned to a net loss. This has led to criticism that the capital reduction was carried out solely for the benefit of shareholders, regardless of the company's financial condition.
Previously, after MBK Partners acquired Medit in 2023, despite two consecutive years of losses, MBK received a 90 billion KRW dividend through its largest shareholder, Digital Dentistry Solution Holdings. Similarly, MBK-owned Dentistry Investment received a 89.2 billion KRW dividend from its recently acquired company, Osteem Implant, last month.
Alphabiz Reporter Paul Lee(hoondork1977@alphabiz.co.kr)
