April 20, 2024

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[THE INVESTOR] Korean food company Samyang Foods is facing criticism for having failed to make a timely disclosure of a previous lawsuit, according to industry sources on March 9.

In 2016, Samyang Foods was sued by its subsidiary Samyang Foods USA for breach of a contract stipulating that the US unit has exclusive retail rights over Samyang products. 

Samyang’s popular Buldak Spicy Chicken Ramen

This week, Samyang Foods said it agreed to pay 4.4 billion won (US$4.11 million) to Samyang Foods USA in an out-of-court settlement.

The problem is that Samyang Foods had not properly disclosed the lawsuit back in 2016. Industry watchers believe the company probably did not want to impact its share price, which began rising that year. Exports also surged to over 100 billion won a year from the previous 30 billion won, helped largely by Samyang’s popular Buldak Spicy Chicken Ramen. 

The Korea Exchange is now looking into whether Samyang Foods had violated related laws under which KOSPI-listed firms must immediately inform shareholders about lawsuits priced at more than 5 percent of the firm’s capital; the 2016 lawsuit was valued at 1 trillion won.

Companies issuing such delayed disclosures are given penalties. Firms inflicted with more than 15 penalty points a year face restrictions in stock trading. They can also become audit targets.

“We expect to reach a decision on whether to penalize Samyang next month,” a KRX official told The Investor.

After the KRX announces its decision for review, it gives the firm seven days to lodge objections. Deliberations take place within the ensuing 10 days. Samyang Foods also confirmed with The Investor that the company did not fulfill its disclosure obligations.

Shortly after the 1997 Asian financial crisis, Samyang Foods had signed a deal with Samyang Foods USA endowing it with exclusive retail rights for 100 years. At the time, Samyang Foods was led by the founder Jeon Jung-yoon, and the US unit by one of his daughters. “The 100-year contract was signed between a father and daughter, so at the time we did not worry about unfairness,” a Samyang Foods spokesperson told The Investor.

After the founder’s son In-jang took over in 2010, the conflict began. Samyang Foods was dissatisfied with sales in the US and asked for changes in their contract. When its US unit refused, Samyang Foods began to place its overseas orders elsewhere, causing Samyang Foods USA to sue.

On March 9, Samyang Foods stocks closed at 87,000 won.

By Song Seung-hyun (ssh@heraldcorp.com)