[Bio Shaking the Market] ② Aprogen, Continuing Intercompany Fund Transactions

[Asia Economy Reporter Hyungsoo Park] Gbase, the top holding company of the Aprogen Group, is 100% owned by Kim Jaeseop, CEO of Aprogen.

Gbase holds 31.35% of Aprogen shares and 20.48% of Aprogen KIC shares. The Aprogen Group, with Gbase at the apex, differentiates roles among its affiliates.

According to the investment prospectus issued by Aprogen Pharmaceutical in July last year for a rights offering, Aprogen and Aprogen KIC are responsible for biosimilar and new biopharmaceutical drug research and development. Aprogen Biologics handles biopharmaceutical production, while Aprogen H&G is in charge of pharmaceutical sales and tangible asset leasing. Nexconics manages IT development and maintenance for the affiliates, and Granbiz and AGT are responsible for new business-related tasks.

Within the group’s business structure, purchase and sales transactions, fund transactions, and equity transactions occur among affiliates. Aprogen KIC and Aprogen H&G conducted circular transactions amounting to approximately 70 billion KRW over about three months from June to September 2018.

Aprogen KIC acquired 21,052,632 common shares of Aprogen Pharmaceutical for 70 billion KRW between January 2017 and June to September 2018. Aprogen Pharmaceutical purchased 4,509,284 common shares of Aprogen H&G in January 2017 and 37,422,037 shares in June 2018 for 90 billion KRW. Aprogen H&G acquired the 17th private convertible bonds worth 70 billion KRW issued by Aprogen KIC.

On April 23, 2019, Gbase sold the call option on Aprogen KIC’s convertible bonds with warrants it held to Aprogen. Through the sale of the call option, it received 28.496 billion KRW. Aprogen exercised the option to acquire the convertible bonds with warrants from existing investors. Exercising the warrant at 2,172 KRW, Aprogen acquired 18,508,287 common shares of Aprogen KIC. As a result, Aprogen incurred a total cash outflow of 68.696 billion KRW: 28.496 billion KRW for acquiring the call option to obtain Aprogen KIC shares, and 40.2 billion KRW for acquiring the convertible bonds with warrants after acquiring the call option. The average acquisition price per share was 3,475 KRW, which matches Aprogen KIC’s closing price on April 22, 2019. Currently, Aprogen KIC’s stock price is below 3,000 KRW.

The Aprogen Group expressed concerns that if similar transactions continue among major affiliates, there is a possibility of a large cash outflow from certain affiliates, which could worsen liquidity for some affiliates or lead to a shortage of operating funds needed to advance the biosimilar business.