HYBE not required to disclose BTS 'hiatus,' Korea Exchange says

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HYBE not required to disclose BTS 'hiatus,' Korea Exchange says

Published: 27 Jun. 2022, 17:20 Updated: 27 Jun. 2022, 19:47

A poster showing BTS members is displayed at a tourist information center in Seoul on June 15. [AP/YONHAP]

HYBE was not required to make a formal disclosure about a possible BTS "hiatus," according to the stock exchange, despite concerns that the company failed to properly communicate a material event to the public and shareholders.

"Not disclosing information on a BTS hiatus is not a violation of Korea Exchange rules," said Lee June-hyung, a spokesperson for Korea Exchange. "The band's remarks were vague. The company would have to file a disclosure if it was clear from when to when the group will halt activities."

Lee added that listed entertainment agencies cannot file reports on every activity of their singers or actors.

In a video released June 14, BTS member Suga suggested that the band would be taking a temporary break from group activities. HYBE's stock plummeted 28 percent the following day to near its initial public offering price.

The stock hasn't recovered since, and the shares are down more than 60 percent from the peak hit late last year.

No announcement was made by HYBE on the Financial Supervisory Service's DART disclosure system following the release of the video and in the weeks after, and the executives have not spoken publicly on the matter.

Listed companies are required to provide information to shareholders on material changes to their businesses, and academics and others have argued that a pause in the activities of HYBE's main act — and probably its biggest earner — might be a fact the agency would be required to disseminate broadly and efficiently.

BTS generated around 70 percent of HYBE's total sales last year, according to local media reports.

"BTS temporarily halting group activities is like Hyundai Motor shutting a factory," said Lee Chang-min, a professor who teaches business at Hanyang University.

For companies listed on the Korea Exchange, disclosures are required on events or issues that may affect their stock prices. A halt in production of products that generate more than 2.5 percent of sales of a company with 2 trillion won ($1.6 billion) or more in assets is one criteria for disclosure.

Kim Kab-lae, a senior research fellow at the Korea Capital Market Institute, said that there's "an unsatisfying feeling" about HYBE's announcement of the hiatus. "It would have been better to have used a formal communication channel with investors."

If required disclosures aren't made, companies are designated as unfaithful disclosure corporations by the Korea Exchange and receive penalty points. A company may be subject to substantive examination if the penalty points pile up, and that could result in delisting.

Questions are being asked about the timing of the video.

Judging by remarks made by group members during the video, it was probably filmed two or three weeks prior to being uploaded on YouTube. HYBE's stock fell 11 percent a day before the release, raising the possibility of insider trading.

"Revealing the information of a group that accounts for a considerable amount of a company's sales, and even having a time gap are factors that could be considered problematic in the capital markets," said an analyst who wished to be anonymous.

Companies in the United States tend to be proactive with their disclosures, preferring to get bad news out of the way while meeting their obligations to shareholders. Investors often favor companies that are more open and transparent about challenges, and may punish those that seek to hide troubles.

They "frequently make disclosures of matters related to key figures, like the resignation of a CEO, if they are relevant to the stock price," said Rhee Na-muh, a former head of Korean research at Merrill Lynch. "If they don't make announcements properly, shareholders are very willing to file lawsuits."

BY JIN MIN-JI, KIM YEON-JOO [jin.minji@joongang.co.kr]